SHARES THE BETTER INVESTMENT SMART BETA THE NEXT 10-BAGGER $550K HOUSE OR $120K GRANNY FLAT 10 MOST-ASKED QUESTIONS

OCTOBER 2017 $7.95 ISSUE 205 Paul www.moneymag.com.au @MoneyMagAUS Clitheroe “WHY MY CREDIT CARD TRAVEL INSURANCE MADE ME LAUGH” WHY PAGE 10 NEGATIVE GEARING STILL WORKS Cash flow plans for low and high incomes: earnupto$19,165- BRYCE HOLDAWAY

PHIL RUTHVEN VITA PALESTRANT PAM WALKLEY SAM HENDERSON IMIMMIGRANTSMIGRANTS MIMINIMISINGNIMISING THETHE RULESRULES HOHOWW TO TAKE OUR JOBS: DEATH TAX AROUND CHASING GET OFF THE 17 MYTHS BUSTED ON SUPER YIELDS MONEY-GO-ROUND 017 AUST 4 50

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EDIVORCE PERFECT RETIREMENT GUIDE TO RE PULLTHROE PORTFOLIO NERIDA COLE EN KINGSLEY THEROAD EXCLUSIVE TEST! SHARE INSIGHTS: WHY 2ND LEVEL THINKERS BEAT G bolts plates I THE BUSINESS OF DYING: GOODBYE FOR AS LITTLE S$15 nto Hamilton’s ys as an NN HOTSPOTS 740kW racer ST M RGA ET OMAS Import v Aussie! PLUS HEALTH INSURANCE: YOUR 10 KEY QUESTIONS ANS ERED

German invader takes on Holden’s home grown hero Is it worthy of the Commodore badge?

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G bol s p ates nside Toyota s inal S nto Ham lton s days as an Aussie 740kW acer manu ac urer THE BUSINESS OF DY NG: GOODBYE FOR AS LITTLE AS $1500

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READ YOUR FAVOURITE MAGAZINES ON ANY DEVICE! More than forty titles available! An army marches on its stomach, sure, but in restaurants staff meals are about more than mere fuel. We visit top Sydney and Melbourne restaurants before service to find out what’s for dinner.

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Restaurant Food awards SPRNG LIFE IS PAYNG OADED SWEET WI H FIRE POKE asman a s Agr r an Sweet nvy s an Dave Pynt Au sie Hawa i s A i n i chen has apt ame or A s air chef t Si gapo e s nfle ted bowl ran hed out rom Wi e s ake y Burn Ends l gh s o raw fish sa ad ook ng sch ol o Be env ous no up he ba b e or on i e ma es es au ant w th more We b ng you aoalfied menu or sma t ca ual ery as y re ul s at steohisb st mdeorprng pr ng mea s 106 114 124 134 Features CHEFS’ UP IN LUCKY MARCO TOP OF TABLES SMOKE STREAK ON MARCO THE CLASS We visit restaurants In his new book Dav d Chang s ood Reading White Heat Pull up a chair in Sydney and chef Aaron Tu ner maga ine Lu ky with Marco Pierre with fork at the Melbourne before chronicles the f l of Pea h bu ned White: how does ready and dig service to see his restaurant L am b ig t and s rong the epoch-defi ning in to the 2018 what’s on the menu and his return o As t c oses Amel a cookbook of the Gourmet Traveller for staff dinner. cooking at Igni Letewigstup ’80s stand up today? Restaurant Awards. 74 80 86 90 94 Travel SAPPHIRE DUE HONG KONG AND GOLD SOUTH FOR ONE enn f r Byr e For a as e of Fl ing oloonyour ak s he S lk Rod ex r me w l ern ss next r p to Hong nd di cove s n xt eme comf rt Kong? A t ad t on of he v v d i to y He en Ande son tab e sha ng ma es f Uzbek s an and t kes a h ke in the c y a h ven

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RNLEY. S RNLEY. AstirWses A atz ie A PHY BEN DE R OG T PH O tablesChefs’ GROSSI FLORENTINO “All the staff from the Grossi sites at the top of the city (Ombra, Grossi Florentino, Grossi Grill and Arlechin) get together at 4.30pm every day. Most days it’s an Italian meal such as chicken on the spit, pasta or risotto, but on Saturdays we’ve devised a roster for the chefs to each have a turn creating a dish from their own culture. We’ve had Korean, Malay and Vietnamese, and a couple of Italian meals and it’s becoming a bit competitive. Sta nourished, but sta nourishment. A g Guy Grossi, exec Bourke St, Melbou

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FIRST BABY PICCS BES VALU CA 60 smart choices ! for every budget ge finally reveals TOBER 2017 bundles of joy!

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MAXIMISE D VORCE VESTT PROCEEDS AULLTHROE IOUS CHARLE ImportI v Aussie! Y?’ SECR 0k rell’s Geerman invader takes on Holden’s home-grown hero W TH NEW HOTSPOTS uish IsI it worthy of the Commodore badge? th ERT PICKS M RGAETOMAS SON’’

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PLUS HEALTH INSURANCE: YOUR 10 KEY QUEST ONS ANSWERED

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34 20 48 COVER STORY INTERVIEW MYTHS BUSTED Why negative gearing Medical cannabis investor You should know the facts still works Harry Karelis to make good decisions

ON THE COVER UPFRONT MY MONEY 10 Paul Clitheroe on travel insurance 6 Editor’s letter 44 Gold Star cars: Wheels team 34 Why negative gearing still works 8 Our experts 46 Extra income: Chris Guillebeau 48 17 myths busted 10 In your interest: Paul Clitheroe 48 Reality check: Phil Ruthven 60 Getoffthemoney-go-round 12 News&views 52 Health care: Beth Quinlivan 62 Houseorgrannyflat 16 In brief 55 Banking: Effie Zahos 56 Family money: Susan Hely 68 Smartbetaquestions 20 Interview: Alan Deans 57 Small business: Anthony O’Brien 71 Chasing yields 24 Ask the experts 58 What if...: Annette Sampson 79 Minimising super death tax 26 Ask Paul 58 The challenge: Maria Bekiaris 82 The next 10-bagger 30 Smart spending 60 Crisis: Sam Henderson 33 Paul’s verdict 61 Life matters: Heidi Armstrong

Disclaimer: Theinformationfeaturedinthismagazineisgeneralinnatureanddoesnottakeintoaccountyourobjectives,financialsituationorneeds.Youshould consider the appropri- atenessoftheinformationhavingregardtoyourowncircumstances.Beforemakinganinvestment,insuranceorfinancialplanningdecisionyoushouldconsultalicensedprofessional who can advise you of whether your decision is appropriate. Bauer Media does not have an interest in the promotion of any company, investment or product featured in this magazine.

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*For the month ending 31 August 2017, investors of Trilogy Enhanced Cash received a distribution return equivalent to 4.30% per annum (net of fees, costs and taxes, and assuming no distribution reinvestment) calculated daily and paid monthly in arrears. Please note this is past performance information for the month of August 2017 only, and is not a reliable indicator of future performance. Past performance information should be considered only as part of a balanced review of all the features, benefits and risks associated with Trilogy Enhanced Cash. Trilogy Funds Management Limited ACN 080 383 679 AFSL 231425 is the responsible entity of Trilogy Enhanced CashARSN614682 469 and has issued a Product Disclosure Statement and Information Booklet both dated 5 April 2017 (PDS) available at www.trilogyfunds.com.au/cash.You should read the PDS carefully, including the risks section, as the PDS contains full details about investing in TrilogyEnhanced Cash, and you should also seek personal advice from a licensed adviser on your financial objectives, situation and needs before making a decision to invest. Applications can only be made on the Application Form accompanying the PDS. Investments involve risk which can lead to loss of part or all capital. Investments in Trilogy Enhanced Cash are not bank deposits and are not government guaranteed. OCTOBER 2017, ISSUE 205

62 74 82 WHAT’S BETTER? DIGITAL FUTURE THENEXT10-BAGGER A $550K house v $120K The new ways to interact Howtoidentify shares granny flat with your super set to grow

PROPERTY INVESTING SHARES 62 Cash flow: Mark Story 66 Superannuation: Susan Hely 80 Strategy: Greg Hoffman Houseorgrannyflat Picking winners Retail opportunities 65 Real estate: Pam Walkley 68 Smart beta 82 Future winners: Graham 10 most-asked questions Witcomb 71 Income: Pam Walkley Uncovering stocks with potential Rulesaroundchasingyields 84 Outlook: Hans Kunnen IN EVERY MONTH 74 Super: Nicola Field 85 Value.able: Roger Montgomery New technology 86 This month: Marcus Padley 7Privacynotice 78 Cryptocurrency: Maria Bekiaris 87 Databank Four-step guide to buying bitcoin 90 The hot seat 79 Super: Vita Palestrant

BAR - 1 2017- 09- 18T16: 59: 36+10: 00 mm1016_cover NO

SMART BETA THE BETTER INVESTMENT GRANNY FLAT 10 MOST-ASKED QUESTIONS SHARES $550K HOUSE OR $120K THE NEXT 10-BAGGER SAVINGS & GIVEAWAYS

Paul 205 OCTOBER 2017 $7.95 ISSUE Clitheroe “WHY MY DIGITAL & www.moneymag.com.au @MoneyMagAUS CREDIT CARD Subscribe and get your SMSF Simple – to TRAVEL INSURANCE 2 MADE ME LAUGH” PRINT PAGE 10 be won. WHY first three issues for $6 – a SUBSCRIPTION savingof74%! 47 Six copies of 6 A 12-month subscription Side Hustle by Chris SAVE NEGATIVE to Money magazine for Guillebeau up for grabs. GEARING ourLetteroftheMonth! 51 Win one of 10 copies 46% STILL WORKS 14 10 copies of our Book of of Phil Ruthven’s PAGE 91 flow plans for low and high incomes: Cash HOLDAWAY Fast-Changing World. earn up to $19,165 -BRYCE the Month – Keep Your

SAM HENDERSON PAM WALKLEY W TTO VITA PALESTRANT RULES HOWHO PHIL RUTHVEN MISING THETHE GET OFF THE GRANTS MIMINIMNI AROUND CHASING MONEYMAG.COM.AU MI SIGN UP FOR OUR FREE WEEKLY NEWSLETTER IMMIGIM MONEY-GO-ROUND DEATH TAX YIELDS TAKE OUR JOBS: ON SUPER 17 MYTHS BUSTED

MONEY OCTOBER 2017 5 FROM THE EDITOR

Negative gearing turns positive ropertyyieldsarelow,capitalgrowthis can expect your net cash flow to turn from Pat risk, APRA continues to slap limits on negative to positive. investor lending and banks have increased On the topic of real estate, Mark Story com- interest rates. Throw in the changes to depre- pares the returns of granny flats and invest- ciation perks and the clipping of investor wings ment properties. Depreciation can certainly and you may be wondering, “Is negative gear- have a big impact on your returns. In his exam- ing a strategy that still works?” ples,theweeklycostofa$550,000houseis Bryce Holdaway, who crunched the num- reduced from $121 to $37 while the $120,000 bersforthismonth’scoverstoryforhouse- granny flat is cash flow positive at $124pw. holds on two different incomes, says “yes”. But as we’re reminded, rely on depreciation Nowwhileyou’dexpectsomebodywho (oranytaxperksforthatmatter)andyou’re makesalivingoutofthepropertymarketto rolling the dice if laws change. say yes, his reasoning has little to do with tax Although it’s a serious topic, Paul Clithe- perks and more to do with time. roe’scolumnoncreditcardtravelinsurance As he says, ultimately, negative gearing is certainlymademelaugh.Ifyou’vebeenread- notsomuchastrategy;it’sataxoutcomethat ing his columns over the past year you’ll know representsamomentintime.It’sameansto he’s been travelling a bit (drawing down some an end. His two plans show exactly when you of his super, I suspect). Not sure what prompt-

Contact us To send a letter to the editor, Feedback write to Money, GPO Box 4088, Sydney NSW 2001 or email Letter of the month [email protected] Future looks sweet for extended family For all inquiries and letters, please include name, address and phone MyhusbandandIhaveatwo-year-oldson goals.Wearenowintheprocessof details. Letters may be edited for and recently inherited two additional chil- upgrading by purchasing our second clarity or space. Because of the drenfulltime(withnoadditionalfinancial family home and renting out our renovated high number of letters received, no support). As we were halfway through our property (positively geared). personal replies are possible. firsthomerenovation,myhusbandandI Whenlifegivesyoulemons,it’stimeto

17_Cover _NO BAR - 1 2017- 07- 17T16: 31: 05+10: 00 PICKS BAR - 1 2017- 06- 19T14: 07: 44+10: 00 REAL ESTATE ALIBABA, FACEBOOK, madethedecisiontoliveoffoneincome make lemonade! TOP 10 mm0717_cover NO THE HOTSPOTS BUY, HOLD OR TENCENT SHARES 4 SELL A-RE BANK THE BIG Ts FUNDS ON ARE THEY SET VERDICT EFFIE TO FALL? RETIREMENT INFRASTRUCTURE NCOME ZAHOS CASH IN THE SUPER PERFORMERS PAY 1% LESS ON YOUR HOME EQUITY ON YOUR to finish the renovation and support two Thanks to the ideas in Money magazine, HOME LOAN & GET 1% MORE AUGUST 2017 ASK ON YOUR SAVING $7 95 www moneymagISSUE 203 THE EXPERTS com au BUILDING “ASK THE @MoneyMagAUS WEALTH FOR 202 EXPERTS” $7 95 SSUE @MoneyMagAUS YOUR JULY 2017 com au SAFE PLACE TO GRANDKIDS distressed young children. we have made educated decisions and moneymag www INVEST THAT ASK PAUL PAYS MORE OVERCOME THE THAN A TERM FEAR OF DEBT DEPOSIT RETIRE ON + $80K PA Despitethepotentialforafinancial created a stable financial future for our MART TURN$5K

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EVERY INCOME▼ BRACKE WITHOUT ,000 and pushed through with our financial Deborah, SA

MAKI G FOR▼ EXTRA UNIT OVERSUPPLY CHINA & INDIA FLIPPING HOMES CONTRIBUTIONS BARGAIN BUYS CATCHING THE NEXT BOOM HOW YOU CAN STILL PROFIT & HIGH RISK a year YOUR STRATEGIES $40k ANNUAL PLUS INVESTMENT • REFUNDS ONCREDITS FRANKING UP THE BEST SEPTEMBER 2017 $7 95 SSUE 204 • SET STRUCTU www moneymag com au @MoneyMagAUS GUIDE OWNERSHIP REG OFFMAN SUSAN NG HELY BUILD HOW MUCH TERRY RYDER A SHARE YOU SHOULD AFFORDABLE PORTFOL BE PAYING IN NEW PROPERTY SUPER FEES HOTSPOTS AROUND WHERE TO LOW AUSTRALIA AGED CARE CH Likefather,likeson BULLETPROOF WAYS MAXIMISE D VORCE TO SAVE SCOTT PAPE PAUL CLITHEROE Mother knows best INVEST PROCEEDS $10k My wife snapped this photo of my five- I’m surprised none of the contributors to your

TURNINGTEENSINTO THE NEW HOTSPOTS INVESTORS ROSS GREENWOOD EXPERT PICKS MARGARET LOMAS month-old son Christian Michael taking a keen feature in the September 2017 issue of Money interest in daddy gave the obvious response to the question, PERFECT RETIREMENT PROPERTY THROUGH GUIDE TO RENTVEST NG $1Ok PA FROM SHARES PORTFOLIO NERIDA COLE SMSFs SAM HENDERSON BEN K NGSLEY MARCUS PADLEY SHARE INSIGHTS: WHY 2ND LEVEL THINKERS BEAT THE MARKET Money magazin THE BUSINESS OF DYING: GOODBYE FOR AS LITTLE AS $1500

PLUS “What is the best advice your father ever gave HEALTH INSURANCE: YOUR 10 KEY QUESTIONS ANSWERED subscription. It’s you?”. It’s “Listen to your mother”, of course. nevertooearlyt Chris, WA HowtogetMoney start setting up Subscribe to the print or digital edition foryourchild’s Educational adventure Call: 136 116 future and set- I recently purchased Effie Zahos’ book The ting good mon- Online: magshop. Great $20 Adventure from Magshop. com.au/money- ey habits once they’re old Asaprimaryschoolteacher,Iknewthis magazine enough. message of financial literacy should be impart- Danny, email ed early in their education. However, I had reservations about the book’s relevance and

6 MONEY OCTOBER 2017 ed him to read the fine print on his card cover but thank goodness he did. He now knows that for his next walking expedition he needs If you cannot control your to book a guide with a gun. (See page 10.) As we were heading to the printers, Austral- emotions, you cannot control ianSuper announced that insurance was now an “opt-in” for younger workers rather than an your money. automatic inclusion. As a mother of a 16-year- WARREN BUFFETT old who has a super fund and no debts or financial commitments, this makes complete sense. Even she questioned the usefulness of having to pay for insurance. AustralianSuper estimates that the exclusion of insurance pre- Follow Money Visit Money online miums before turning 25 would save mem- on Facebook Check out our website and while bers an average of $9000. No doubt other facebook.com/MoneyMagAUS you’re there sign up for our free major super funds will follow. weekly email newsletter. You’ll get Follow Money our top money stories plus exclusive Effie Zahos, finance tips. Editor, Money on Twitter magazine twitter.com/MoneyMagAUS moneymag.com.au

its ability to engage the children but I read it to my year 2 class nonetheless. I was surprised! The students were com- pletely engrossed in the text, which then led to quality discussions afterwards. I will revisit the text later this year to reinforce its impor- tant lessons. Additionally, the year 5 student that I tutor read the book to me and was equally engaged. I recommend this book to all primary aged students (and their teachers). Garry, NSW

PRIZE WORTH WINNING Each month we’ll award one letter a 12-month subscription to Money magazine. Write to: Letters, Money, GPO Box 4088, Sydney, NSW, 2001 or email [email protected]

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MONEY OCTOBER 2017 7 OUR EXPERTS

Who is your biggest inspiration?

The Money team

EDITORIAL PHOTOGRAPHS Chairman & chief Getty Images commentator EFFIE ZAHOS HANS KUNNEN GRAHAM WITCOMB Paul Clitheroe ADVERTISING NSW, WA & SA Effie is Money’s editor and Hans is chief economist at Graham is a senior analyst Editor Effie Zahos Vince Lam author of The Great $20 Compass Economics. Hans at Intelligent Investor. Deputy Editor (02) 9282 8906 Adventure. Effie says: says: “Geoff Walker, an Graham says: “Charlie Maria Bekiaris Victoria Christine Lester “Pick ups from my son’s actuary with State Bank Munger, not for who he is, Art Director (03) 9823 6382 tutoring lessons often turn NSW, was my investment but for something he said Ann Loveday Queensland Judy Taylor into discussions about inspiration. He took me that seems to solve Designer (07) 3101 6636 French economist Thomas through the maths of con- almost every financial, Heather Armstrong Piketty and author Satyajit servative gearing into the health and relationship Senior Sub-editors Das. Both remind me to sharemarket. He explained problem I encounter: ‘The Bob Christensen, PRODUCTION stop spending and that ‘the long game’ and the surest way to get what Debbie Duncan, Controller Janice Hogg Rosanna Quinzon the worst is only ever interaction between divi- you want is to deserve around the corner.” dends and interest costs.” what you want.’” Senior Writers Advertising Production Susan Hely, Pam Walkley Dominic Roy Online Content MARKETING Producer Brand Manager Sharyn McCowen Georgia Mavrakakis Subscriptions CONTRIBUTING Thea Mahoney WRITERS Heidi Armstrong, MANAGEMENT Chris Guillebeau, Alan CEO Paul Dykzeul Deans, Nicola Field, Chief Financial Officer Ross Greenwood, Andrew Stedwell Sam Henderson, Greg Hoffman, Bryce Commercial Director Holdaway, Hans Kunnen, Australia Paul Gardiner CHRIS GUILLEBEAU PAM WALKLEY ALAN DEANS Roger Montgomery, Anthony O’Brien, Marcus Chris is a blogger, speaker Pam was founding editor Alan is senior partner at Syndication inquiries: Padley, Vita Palestrant, and author of several of Money and is now a Last Word Corporate Com- acpsyndication@ Beth Quinlivan, Phil non-fiction books includ- senior staff writer. Pam munications. He worked Ruthven, Annette bauer-media.com.au ing Side Hustle. Chris says: says: “John Maynard for 30 years as a journalist ISSN 1444-6219 Sampson, Mark Story, “I’m fortunate to have an Keynes, a renowned econ- and editor. Alan says: “Max Graham Witcomb amazing community of omist, inspires me Walsh reads prolifically, CONTRIBUTING Side Hustle School listen- because he tried to fix and always has a fresh take ARTISTS ers. Every day I hear about widespread unemploy- on the major economic Frances Andrijich, their successes, challeng- ment and unregulated events of the day. He’s not Simon Casson, Reg es, and next steps. This capitalism, both of which afraid to call out govern- Lynch, Jim Tsinganos, feedback helps me do caused hardship ments, corporations, John Tiedemann better work!” for many.” bureaucrats and investors when they stuff up.”

8 MONEY OCTOBER 2017 Should you invest in a house or a unit?

A house or a unit? Each have their pros and cons, though we advise each LQYHVWRUDFFRUGLQJWRWKHLULQGLYLGXDOóQDQFLDOVLWXDWLRQDQGLQYHVWPHQWJRDOV

Houses The growth in equity will allow you to Claim your FREE book on afford the deposit and costs for your next Long term their capital growth is better. Property Investing property — and the next property after that. Tenants are typically stable families that What is fundamental is ensuring that your To learn more about our M.A.P. process provide secure income, reducing the risk of investment is working for you passively while and why following a proven system is you covering any shortfalls due to vacancy. growing in value and maintaining a positive However, houses are more expensive so crucial when investing for long-term cashfl ow position. you need a bigger borrowing capacity to gain, claim your free book on Property afford them. Investing below! Remove emotion from any property Units investment purchase Valued at $27.99 Getting emotional about investments is Units are usually more affordable via the opencorp.com.au/moneyoct the biggest mistake investors can make. lower price point. They’re cashfl ow focussed Buy effective investments as opposed to so rental yields tend to be better. When properties that you ‘like’ or can drive past coupled with tax benefi ts, holding costs are every day. These typically end up being more lower and this is appealing for investors on expensive to hold and besides buying well lower incomes. The trade-off is that they are and having a great property manager, mean A in abundance and oversupply prevents solid D T $ your investment runs smoothly. E 2 capital growth. As new blocks are built, tenants U 7 L .

9

can simply shift into a newer property which A 9

To remove all emotion from the decision, V increases your vacancy risk and impacts your we follow our proven M.A.P process; ability to increase rents consistently. Market > Area > Property. If you’d like more FREE BOOK So, what’s the answer? information about how this works contact OpenCorp today on 1300 OPEN CORP. When it comes to growth versus cashfl ow, we don’t believe you have to sacrifi ce one for Michael Beresford the other. We believe real wealth is created by Director of Investment Services compound growth. The way to achieve this is OpenCorp to identify and hold growth focussed assets with little or no cost to hold.

1300 OPEN CORP IN YOUR INTEREST Paul Clitheroe

Check the fine print on your credit card insurance policy – you could be in for a shock

learly it makes sense to understand occurred to me that if I ran into a Ferrari for “trekking”. We do enjoy a good trek but your insurance. Income protection I had a problem. Unless I take extra cover, I we have no cover under our policy. We are C policies in particular are fraught have only $150,000 in damage cover to my covered if “walking”. I guess we need to go with danger but this month I want to focus carandavehicleorvehiclesIhit.Iguess with tour operators offering a “walk” not on a very important policy that affects myhirecaristypicallyworth$40,000 a “trek”! Interestingly, we would not have millions of us: travel insurance. or so, meaning I am pretty safe as long been covered during our recent “walks” at Between us we buy about 10 million as I hit cars worth under $110,000, which Spitsbergen in the Arctic. An exemption is international airfares a year. We Australi- seems like a reasonable bet. But I am not a if walking with a “guide carrying a gun”. ansareaboutthewealthiestpeopleonthe betting person. I’ll be taking extra cover in That made me laugh: you are insured if the planet so we travel a lot. future.IalsoseethatifIamnotonabitu- guide does not have a gun for the walker’s Like many readers of Money,Iusean men-sealed road I am not covered. protection. I suspect the insurer reckons upmarket credit card for my travel insur- Where the policy is pretty good is snow you are in more danger of the guide acci- ance.Yes,itcostsusaprettyhighannual skiing. Most policies will not cover you if dentally shooting you than being attacked feebutVickiandIdirectallourspending skiing off a groomed run. Ours does not by a polar bear, which is probably right! onto it, we pay it off in full inside the inter- have an exemption as long as you are in the We are also not covered if walking above est-free period and understand the benefits boundaries of the resort. If you are not, this 4000 metres, so to my embarrassment we it offers and how to use them. is deemed an “extreme sport”. Fair enough. were not covered during the last six days of ButIhavetopleadguiltyaboutnotfully a recent walk up Mt Kilimanjaro. reading the fine print. Sure, I get the basics. So with our card cover we can ski “off- We have to pay a minimum of $250 on the piste” and but not have a canoe ride. We card towards a part of every trip and with a Strangely, I could have can dive to 30 metres but not go for a walk hirecarithastobe100%ofthecost. if it is called a trek. And we really must Given the outcry about policies not paying gone scuba diving but not avoid hitting expensive cars. I also note we out, and with a trip coming up, I thought I are not covered by any act of terrorism. had better get my act together and read the paddling in a canoe I do appreciate there are some pretty full policy. It was not as bad as I feared but small risks here, and part of life is taking some of the “we will not pay you” conditions Where it is a bit odd is that you are cov- risks we understand. But at least I now didsurpriseme.Othersmademelaugh. ered for scuba diving to 30 metres but not know where I need to buy extra cover. First up, car hire. Our credit card policy a simple canoe paddle, horse riding, white- My advice is very simple: read your givesusamaximumof$150,000foracci- water rafting, go-karting or rock climbing. insurance policy before you book your trip. dental damage, above any amounts that But mountain biking and hot air ballooning, exist in the rental company contract. I have which we do enjoy, are not covered and nor Paul Clitheroe is Money’s chairman and not been ticking the “extra insurance” box is bungee jumping. Mind you, I wouldn’t chief commentator. He is also chairman in the contract as I knew I was covered for cover that if I was an insurance company. of the Australian government’s Financial the excess in an accident. But it had not It was a shock to discover the exemption Literacy Board and a best-selling author.

10 MONEY OCTOBER 2017 8.00%pa* Current net rate, paid monthly

Because you have more important things to worry about.

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* Net rate paid to investors with Allocated Units calculated daily and paid monthly in arrears for the month ended 31 August 2017. Net rates are net of management fees, costs and tax, and assumes no reinvestment of distributions. The rates of return equivalent to 8.00%pa are not guaranteed and are determined by the future revenue of the Trust. For the month ended 31 August 2017 Investors held Cash units for an average of 2 days but historically this time period has been much longer. Cash units were paid a net rate of 1.25% p.a. calculated daily and paid monthly in arrears. Past performance is not a reliable indicator of future performance. IMPORTANT: This advertisement is issued by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy Funds) and does not take into account your objectives, personal circumstances or needs nor is it an off er of securities. The Trilogy Monthly Income Trust ARSN 121 846 722 is a registered pooled mortgage fund and investments can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 1 September 2017 issued by Trilogy Funds and available from www. trilogyfunds.com.au/tmit. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including the Trilogy Monthly Income Trust, involve risk which can lead to loss of part or your capital. Trilogy Funds is licensed to provide only general fi nancial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, fi nancial situation and needs from a licensed adviser who will conduct an analysis based on your circumstances. Investments in the Trilogy Monthly Income Trust are not bank deposits and are not government guaranteed. The fi gures in this advertisement represent returns on units characterised as Cash and Allocated units under the previous PDS dated 17 October 2017. From 1 September 2017, these unit characterisations are no longer applicable. Please see the PDS dated 1 September 2017 for further detail. THIS MONTH

THE BUZZ Doyourbittoplug super’s $2.85bn gap Checkthatyouremployerismakingthecorrectcontributions hetaxofficelastmonth lose on average around $3750 a payment. You can also create Treleased its estimate of year and for a 25-year-old a one- an account on the tax office’s the gap in superannuation offlossofthissizecouldequate myGovservicetoseedetailsof guarantee (SG) payments by to a $13,500 loss at retirement. all your super funds, including Australian employers – that Ifyouhaveanydoubtsabout any that you may have lost is, the difference in the amount whetheryoursuperisbeing track of or forgotten about.

VIEWS that should have been paid paid correctly, these steps can Lodgeaninquirywith compared with what was help you resolve the issue: 3the ATO actually paid. Speak to your employer Ifyouhavecheckedwithyour The ATO estimates the gap is 1Ask your employer if employer and fund, and are still 5.2% ($2.85 billion) of the total they have been making SG notsurethatyouremployer

& estimated $54.78 billion in contributions for you and, if is paying you enough (or any) super that employers were so,howmuchtheyhavebeen super,youcanlodgeanunpaid required to pay in 2014-15. paying and which account super inquiry with the tax office. An estimated 650,000 details they are using. If your Youwillneedtoprovideyour Australians each year are contributions have been going employer’s ABN and contact affected by SG non-compliance. intoafundthatyounolonger details, along with information Bylawyouremployeris useorcheck,youmaywish on your current employment requiredtopay9.5%ofyour to consolidate your super. arrangement and details of the salary into your superannuation Contact your super fund period of lost super. The ATO account, at least quarterly. 2Ifyoudonothave will investigate and provide If they are not, you could face your most recent member youwithupdatesvialetter. negative consequences when statement, you can contact Glen McCrea, chief policy you reach retirement: people your super fund to find out the officer, the Association of Super- affected by SG non-compliance timing and amount of your last annuation Funds of Australia NEWS ON MY MIND CALENDAR OF EVENTS Bitcoin is too hot to touch

Thursday, October 5 itcoinisupabout300% that underpins bitcoin but it is not limited to Balance of trade Bthis year. Ethereum is up cryptocurrencies. It is a way of creating a record Wednesday, Oct 11 3700%(itwasup5400%). that is almost impossible to tamper with. It Westpac consumer Cryptocurrency is hot. Too hot therefore becomes a source of truth, enabling confidence in my opinion. It is showing all parties who don’t know each other to engage the signs of an overhyped bubble. in transactions with confidence and trust. It is Friday, Oct 13 Bitcoinlooksverysimilartothedotcom beingconsideredforalargerangeofapplications, Consumer inflation bubble but, interestingly, despite that bubble’s including share registries, land registries, banking expectations spectacular burst, with stock prices crashing and applications, crypotocurrencies and more. Thursday, Oct 19 manycompaniesgoingtothewall,twodecades While the cryptocurrency boom could well blow Unemployment rate later the internet has fundamentally changed up,in20yearswemaylookbackandrealisethat the way we work and play. thedevelopmentofblockchainhasfundamentally Cryptocurrencies are built on a platform changedthewaywedothings. called blockchain. Blockchain is a technology Chris Batchelor, CFA, market commentator

12 MONEY OCTOBER 2017 NEWS BITES

You can now use Afterpay to book flights through Jetstar. Currently the service is only available for domestic flights for transactions between $200 and $1000 booked eightweeksormoreinadvanceof travel.Thereisaservicefeeof $10 per transaction. It may be extended to international flights down the track.

ETFSecuritiesAustraliahaslaunched anETFfocusingonrobotics,automation and artificial intelligence (AI) technologies. The ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO) will track the ROBO Global Robotics and Automation Index (RAAI), whichconsistsof83stocksfrom12 high-growth sub-sectors. Performance figures for the index show it returned 18.2% annualised over three years to August 31. There is a 0.69% management fee.

In a deal aimed at boosting electric vehicle take-up, Macquarie Group’s leasing arm, with Clean Energy Finance Corporation support, will offer electric vehicle leases at a 0.7% discount to the standard rate. It is estimated about 1200 vehicles will be financed under the arrangement.

More of us buy now, pay later

ou might have noticed some instalmentstoberepaidfortnightly Ynew logos appearing at over eight weeks. Use of buy now, pay checkouts recently, both online later services is certainly increasing andinstores–logosfor“buy –accordingtoRFiGroup’sresearch, 85% now, pay later” services such 16%ofAustralianconsumershave of Aussies buy a round of drinks when out with as Afterpay, Openpay and zipMoney. You might nowusedoneoftheseservices. friendsbut81%wouldratherbuytheirown, beoneoftheincreasingnumberofconsumers If you are thinking of giving buy according to a survey by ME. About 64% think whohaveusedoneoftheseservices. now, pay later a go, make sure you theyspendmorethantheyotherwisewouldwhen Asthenamesuggests,buynow,paylaterisall do your homework to fully understand involved in a shout. So why do it? Well, 42% aboutspreadingthecostofapurchaseovertime. what your obligations are. The best feel expected to participate, 39% don’t Afterpayisprobablythebiggestoftheservices place to head is the provider’s website, want to look tight and 26% think andclaimstoaccountfor5%ofonlineretailsales where you will be able to find all the it would be un-Australian and 20% of online fashion purchases. It enables information you need. you to split the cost of your item into four equal Alex Boorman, research director, RFi Group to refuse.

MONEY OCTOBER 2017 13 THIS MONTH

BOOK OF THE APP OF THE TAX TIP MONTH MONTH Beware CGT in SAFESWISS divorce transfer COST: FREE OS: IOS, ANDROID ith one in three Australian marriages Wending in divorce, a factor that sep- afeSwiss is a arating couples need to be aware of is tax.

VIEWS Sfree private As part of any financial settlement there will messaging usually be a split of assets. This means that app similar to legal ownership of some assets will change, & WhatsApp and Viber and, like which would normally be a trigger for a capi- its competitors, it allows for tal gains tax event. encrypted voice calls and In most cases, where an asset subject to KEEP YOUR SMSF SIMPLE text chat as well as offering CGT is transferred between spouses as a Barbara Smith & Ed Koken a group text chat feature. result of a marriage breakdown, a CGT roll- Major Street Publishing One of its biggest selling over will apply – this has the effect of disre- features, though, is that its garding any capital gain or loss arising from

NEWS RRP $34.95 latest update makes sending the transfer. The receiving spouse is treated hether you already have a self-man- an attachment to the wrong as if they had always owned the asset and Waged super fund or are thinking person a thing of the past. is liable to CGT on the full capital gain when about starting one, you’ll find lots of useful “The new feature does they ultimately dispose of it. information in this book by tax and super away with the embarrassment The marriage separation rollover is experts Barbara Smith and Ed Koken. It and business risks associated automatic. You cannot choose whether or covers everything from setting up and with accidentally sending not to apply it. managing an SMSF and selecting invest- an attachment or file to the For tax purposes, it is important that ments at accumulation phase through to wrong person, implemented in any financial arrangement is formalised by what you should be doing in retirement a super-secure mobile messag- a court order, maintenance agreement or phase. It also looks at the changes that ing environment,” says Safe- binding agreement. Avoid “informal” private kicked in on July 1 because, as it points out, Swiss. Push-to-delete allows agreements; for the rollover provisions to keeping up with the changing rules is one you to delete messages, files, apply, the asset must be transferred under a of the key tasks when running an SMSF. photos and videos you’ve acci- formal agreement or settlement. If the trans- dentally sent on your device, fer is agreed as part of a private agreement, Ten readers can win a copy. the recipient’s device, or both. the normal CGT rules will apply. This means In 25 words or less, tell us your best tip for SafeSwiss lets you sign up that the assets will be treated as being sold keeping your SMSF simple. Send entries to without a phone number or at their market value by the disposing spouse Book of the Month, Money, GPO Box 4088 email for additional privacy. (triggering a capital gain if the market value Sydney, NSW 2001 or email money@ Youcanalsosetaself-destruc- is greater than cost) and will be acquired at bauer-media.com.au. Don’t forget to tion timer that wipes the mes- market value by the receiving spouse. include your name and postal address. sage on both devices after the MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT Entries close November 1, 2017. specified time. H&R BLOCK. [email protected]

SNAPSHOT Bank of mum and dad steps in

How Australian parents are helping their kids How Australian parents are financing their onto the property ladder (% of parental lenders*) contribution to their children (% of parental lenders*) Allow child to live Own at home rent-free 43% savings 66%

Contribute money Cutting back towards deposit 41% expenses 26%

Acting as Home a guarantor 13%% equity 13% The national Assisting with 9% average lent to Delaying 9% repayments children is retirement Buying a property Selling on behalf of, or as a 9% $64,206 4% partner of, the child assets *Some parents provided multiple forms of assistance, Source: Mozo.com.au resulting in percentage exceeding 100.

14 MONEY OCTOBER 2017

IN BRIEF

INSURANCE Rippped off by Income tickete resellers

atch out if you’re buying tickets protectio for a concert or sporting event because yyou could be ripped off if you vtrauma deal with a reseller. “Tickets purchased in Australia Josh Callaghann, general manager, from resale sites such as Viagogo, wealth, Canstar TiTicketmaster k t Resale and StubHub were sold higher than face value in 83% of our • It’s important to note that cases, had hidden fees tacked on in 68% Yincome income protection premiums of cases and were for the wrong seats in is your most can be more than twice the 8% of cases,” says the consumer group important cost of trauma policies, even Choice. “But four out of five Australians asset, yet it is often overlooked. afterfactoringinthetax who purchased a ticket from these Many of us don’t prepare deduction that comes with resellers believed they were buying it for the impact that illness or income protection insurance. from an official vendor, in part because of disability can have on our ability • Knowing that income how they were marketed and because of to earn an income for a period protection can be quite the design tactics used by these sites.” of time. expensive, you could consider The Australian Competition and Income protection and trauma insurance as an Consumer Commission (ACCC) is trauma insurances are two affordable option. Trauma taking Viagogo to court for misleading products designed to protect insurance will not pay out in as consumers. The watchdog has received us against such financial losses. many circumstances as income 473 contacts about Viagogo from Here are a few important protection insurance but it does Australian consumers this yearyear. facts to help you understand offer some peace of mind with

MY MONEY them better: cover for upfront expenses. • Income protection insurance Income protection and XMORE commonly insures 75% of your trauma have some overlap grossincomeintheeventof in what is covered but are MONEY prolonged illness or disability not substitutes for each STORIES that prevents you from other. If anything, ON P40-61 working. AVERAGE trauma insurance • In comparison, PREMIUM1 is a reasonable trauma insurance addition is an immediate, males to income TOP one-off lump IncomeIn pro rotect ion protection cover. PROMOTIONAL sum payment to $87amoonth Ultimately, cover financial Traumma affordability, BONUS SAVINGS needs and is only $42ammonth h occupation ACCOUNTS paid if you meet one and personal of the specified medical circumstances will The ACCC offers these tips for RaboDirect 3.05%pa conditions in the policy. determine what levels consumers buying tickets to an event: advertised rate, Due to the risks of AVERAGE and type of cover Buy your tickets from an authorised 1.8%pa without • 1 • bonus; EasyStreet certain occupations PREMIUM are relevant to ticket seller to ensure you get seats you Fin Services 3%pa and barriers you, which is what, aren’t paying more than face value advertised rate, 2%pa to re-entering femalesemale something and actually get a real ticket. without bonus; HSBC the workforce Incomcome protecti ection to speak to a • Don’t trust search results alone as 3%pa advertised rate, for some jobs, $132a monthm financial adviser a ticket seller who has come up first 1.6%pa without bonus; income protection TrTrauma ma about. may be a reseller who may have paid to Bank of Melbourne, insurance $38 a month be at the top of the list, or even a fake BankSA, St.George premiums vary Source: Canstar. 1Premium ticketing website. Bank (NSW) 3%pa by occupations, with for a 30-year-old. All white-collar • If you pay for tickets with a credit card advertised rate, 1%pa professionals paying the least occupations considered. Income protection and you do not receive what you paid based on stepped premiums covering 75% of without bonus. Source: and blue-collar occupations $70,000 annual salary. Trauma based on stepped for, you can ask your bank or credit card Canstar as at 13-Sep-17. paying the most. premiums for cover of $250,000. provider for a chargeback. COMPILED BY MARIA BEKIARIS

16 MONEY OCTOBER 2017 IN BRIEF

AFFORDABILITY $400,000 house isadying breed

tperhapscomesasnosur- CoreLogic research ana- COMBINED REGIONAL AREAS Iprise that buying a property lyst Cameron Kusher says he for less than $400,000 has anticipates that over the next Annual % of sales below $400,000 become harder and harder. 12 months the proportion of 100% Research by CoreLogic properties that sell for less 90% shows that across Australia in than $400,000 will decrease 80% theyeartoJune2017,31.2% even further. 70% Houuses ofhousesalesand37.3%of “Although the federal govern- 60% Units unit sales were for less than ment attempted to address the 50% $400,000.Thatisabigdrop issue in the budget this year, Jun92 Jun97 Jun02 Jun07 Jun12 Jun17 from10yearsagowhenthe in order to improve housing Source: CoreLogic figures were 62.4% for houses affordability clearly there is and 68.9% for units. much more work to be done on COMBINED CAPITAL CITIES

You are more likely to both supply and demand driv- Annual % of sales below $400,000 PROPERTY find a property for less than ers of the market,” he says. 100% $400,000 in regional areas, “A greater supply of stock 80% XMORE where 52.0% of houses and which could potentially reduce 60% PROPERTY 60.5%ofunitsthatsoldinthe prices would at the very least 40% STORIES ON 12monthstoJune2017were be a good start. However, the Houses 20% priced below $400,000. supply needs to be supported Units P62-65 0% Unfortunately, things are by sufficient infrastructure and Jun92 Jun97 Jun02 Jun07 Jun12 Jun17 likelytogetworse. employment opportunities.” Source: CoreLogic TOP LOW-RATE Renovating to rent or sell HOME LOANS Nathan Birch, director, BInvested Homestar Finance 3.44%pa, 3.45%pa AAPR1; Reduce Home big mistakes two paths you can take: renovat- TO SELL: I look at Loans 3.44%pa, people make is ing to rent or to sell. the same type of A 3.45%pa AAPR;

renovating to their TO RENT: You can keep it simple and cosmetic renovations – Mortgage House personal taste and opt for cheaper materials. With hun- carpets, paint, tiles and so on – but 3.49%pa, 3.49%pa not considering the dreds of rental properties to manage, with some added finishing touches. A AAPR; Freedom Lend market.Whetheryouoptforcarpet I’ve chosen to stick with one paint feature wall, for example, and lighter 3.49%pa, 3.50%pa ortilesshoulddependonlocaldemo- colour – Whisper White – for all carpets can make a house feel more AAPR; Homestar graphics, not your personal preferenc- the walls and ceilings of each of my like a home. When selling you want Finance 3.49%pa, es. It’s important to understand who properties, both saving me money and people to connect and to envision 3.52%pa AAPR. you’re doing the renovation for and simplifying the process if one of them themselves living there. Source: Canstar as at tailor it accordingly. needs a new coat of paint. Always opt There’s no rule of thumb when it 13-Sep-17, ranked by With cosmetic renovations, which for darker shades of carpet for a rental comes to how much to spend, but if AAPR. 1AAPR on are less likely than structural jobs to property, as this is often the first thing you’re not sure that you’ll see a return $250,000 loan result in overcapitalising, there are to be destroyed by tenants. on your investment, don’t do it. for 25 years. COMPILED BY MARIA BEKIARIS

MONEY OCTOBER 2017 17 IN BRIEF

DISCLOSURE Fees can no longer be hidden

Alex Dunnin, executive director, research and compliance, Rainmaker Information

hen you an investment manager that declares The subtlety is that the crediting Winvest averylowinvestmentfeeonlyto rates that fund members and inves- through a super divert some of the gross investment tors receive in their accounts won’t INVESTING fund or another income to cover their internal costs. change because they were actually type of managed Or your fund uses a multi-manager paying these higher fees all along. XMORE investment, the true cost of your that subcontracts other investment These new rules came into force INVESTING fees and charges is made up of managers without disclosing to the this month. But as common sense STORIES ON the explicit headline fees plus any super fund these second-layer fees. as they seem, ASIC has created a lot indirect costs such as investment But these are fees by another name of confusion due to the way the new P66-79 manager charges. The financial reg- and from now on super funds have to fee rules work if your super fund ulator ASIC is concerned that funds include all these amounts when they uses a platform or if it has a lot of may not be declaring the full value tell you how much their total fees investments in unlisted property and of these below-the-surface costs and charges are. infrastructure. and is introducing new rules to make ASIC estimates its new disclosure If your latest investment state- sure they do. rules could see funds increase their menttellsyouyourfeeshavejustyy j For example, your fund might use reported fees by an average 0.23%. gone up, now you know why. TOP SUPER FUNDS, AUSTRALIAN SHARE OPTIONS, Join the funding crowd BY 1-YEAR etail investors are Only companies not website. It suggestsyou PERFORMANCE Rnow officially able already listed on a stock check that the commpany Catholic Super, to invest in start-ups and exchange can raise funds has listed its offer ona 10.69%; CFS-FC Persl, small businesses through using CSF. website that is run by 10.24%; BT Lifetime crowd-sourced funding If you want to invest an intermediary witth an Super Emp., 9.91%; (CSF). From September in a company offering Australian financial ser- Telstra Corp Plus, 29 you could invest up to shares through a CSF vices licence (AFSLL).You decide the 9.72%; CareSuper, $10,000 a year in a com- website you must apply have a cooling-off period investment 9.43%. pany and you’ll get equity through that website, of five business dayysto isn’t for you, says Source: SuperRatings in the form of shares. explains the MoneySmart change your mind iff you Mo MoneySmart.neySmart as at 31-Jul-17. COMPILED BY MARIA BEKIARIS

18 MONEY OCTOBER 2017 IN BRIEF

SMALL CAPS Four ‘musts’ for your portfolio John Abernethy, managing director, Clime Group

ut-of-favour nationwide store footprint (currently Oand cyclical 45 with a long-term target of 75 stocks offer oppor- across Australia and New Zealand). tunities for investors who have the While earnings have more than stomach for it and can anticipate tripled since 2012, the equity base agement, hotels, tourism and leisure, a rebound but we believe there is has roughly doubled. This demon- real estate and special situation a better option. The micro- and strates a strong return on equity investments. Along with diversified small-cap segments of the market and implies quality management exposure and high-calibre manage- are structurally inefficient due to and a business with a high-quality, ment, Elanor continues to display relatively low commission potential self-funded growth profile. growth in recurring income with an and limited trading volumes keeping Collins Foods (CKF) is a leading attractive yield of 7.1%. stockbrokers away, and lower levels restaurant operator, manager and Folkestone (FLK) is an emerging SHARES of liquidity preventing larger institu- administrator. Its core business is asset manager and property devel- tions from meaningful participation. the operation of almost 200 KFC oper with a platform that encom- XMORE Having a diligent selection frame- stores across Australia and Germa- passes the management of a listed SHARES work is critical, with a focus on key ny. It has established a sufficient A-REIT, income-focused property STORIES ON factors such as competitive position- pipeline for organic growth in both syndicates and a substantial mul- P80-86 ing, future prospects, balance sheet regions, which, combined with a ti-sector development pipeline. We strength, cash flow characteristics, discount to future value, presents a believe Folkestone, led by a quality profitability profiles, quality of man- promising longer-term opportunity. management team that owns a agement and valuation. Elanor Investors Group (ENN) is substantial stake in the business, can Nick Scali (ASX: NCK) is a lead- a multi-level investment manager deliver strong growth in earnings per ing furniture retailer with a huge whose segments include funds man- share over the coming three years.

SMSFs swing to HOLD COCA-COLA AMATIL index funds The Intelligent Investor James Greenhalgh uided by financial planners, RECOMMENDATION Gself-managed super funds (SMSFs) have cut back on direct BUY HOLD SELL below up to above shares in the past 12 months. A $5.00 $7.50 $7.50 year ago, financial planners rec- ommended that 22% of direct TOP A-REITS shares make up an SMSF portfo- BY THREE-YEAR lio. But this has dropped to 18% SELL at $8.04 in 2017, according to Investment TOTAL RETURN Source: Intelligent Investor; price as at 30-Aug-17 close of business Trends and Vanguard’s SMSF Blackwall Limited report for 2017. t’sabigcalltosaythemarket’s Despite cutting prices, Australian Bev- (BWF) 55.37%pa; Rural Financial planners have Iwrong. But here goes: the market’s got erages volumes fell 4% in the first half. Funds Group (RFF) increased SMSF investments in Coca-ColaAmatilwrong.Thebrokers “Still” volumes fell a whopping 9%. 43.20%pa; Asia Pacific unlisted index funds from 7% have forecast Amatil will deliver earn- Perhaps the best we can say about Data Centre Group lastyearto11%,andinlisted ings per share of around 56¢ in 2019. Amatil is that it’s unlikely to go bank- (AJD) 28.58%pa; Arena exchange traded funds from Ourview?Itsimplywon’thappen. rupt any time soon. Don’t be lured by the REIT (ARF) 27.84%pa; 8% to 10%. Managed accounts, The largest division, Australian prospective 2017 PE ratio of 15 and yield Blackwall Property often run by financial planning Beverages, is groaning under the weight of 5.7%. These are only reasonable if Trust (BWR) 23.25%pa. firms, have jumped from 5% to of accelerating revenue declines. The you believe management’s medium- and Source: ASX as at 10% this year. trendsarenegativeandgettingworse. long-term targets. We don’t. SELL. 31-Aug-17. COMPILED BY SUSAN HELY

MONEY OCTOBER 2017 19 INTERVIEW

STORY ALAN DEANS Medicine man

t’slessthanayearsincecannabis Fact file waslegalisedformedicalpur- poses,andinvestorshaven’tlet Harry Karelis the grass grow beneath their Investor in medical cannabis feet. Australia already ranks growth stocks AusCann and Iamong the countries with the highest Zelda Therapeutics; number of recreational users. The historyofcannabiscultivationhere livesinMountPleasant, datesbacktotheFirstFleet,when Perth, age 47. settlers brought along seeds to make hemp. Now the aptly named weed is at thecentreofagrowthindustryaimed Wantstovisitasmanycountriesashisageand at treating many common ailments. has a few to go; managed private equity medical Let’sgetonepointstraight.Themar- and tech funds. His advice to readers is get a ijuana that is smoked is not the same good financial adviser. First job, stuffthatcouldsooneaseitchingfrom kitchen hand at KFC. eczema,letinsomniacssleeporimprove cancer treatments. The plants look similar buttheyhavevastlydifferentchemical make-up. Cannabis contains 113 types of acompoundcalledcannabinoid.Justone insleepdisorders,withitsownsleeplabs. federal government now classifying can- of those, THC, brings a state of euphoria. “Picture a controlled environment where nabisasaSchedule8drug,alongwith Plantscanbebredtohavethousandsofdif- youhavearelaxingnight’ssleepwith24 opioids. Karelis is confident the trials will ferent concentrations and combinations of leads attached to your brain, your lungs, work because Zelda has unique access to each compound, giving them the potential yourheart,yourlimbsandacameramoni- the results of medical cannabis treatments totreatmanydifferentills.Noonecom- toring your night’s sleep,” says Karelis. “We from a Californian company, providing pound works alone. They all do, creating will be monitoring pretty much everything ashortcutfortheirtests.Knowingthe what is called an entourage effect. Now that is going on, including blood. This will chemical fingerprint that works is valuable, that it’s legal, the challenge is to test exactly be a randomised, crossover, placebo-con- becauseapatentcanberegisteredonthe whichplantshavewhicheffects. trolled trial. That means the gold standard. type of plant and the dosage. The company Harry Karelis is doing just that. Before If we show that our medicine works under wouldthenlicenseproductionofcanna- theyearisout,acompanyhechairs,Zelda those conditions, then it works.” bisoilanditsmarketing.Dropswouldbe Therapeutics,willstartitsfirstclinical More trials are planned next year on administered under a patient’s tongue. trial in partnership with the University autism, insomnia and breast cancer. If Therestrictionsarestilltoomuchfor of Western Australia on formulations to successful, then approval is needed from some.Entertainerandcancersufferer

treat insomnia. The university is a leader strict state regulatory bodies despite the Olivia Newton-John recently called for it to FRANCES ANDRIJICH

20 MONEY OCTOBER 2017 be more readily available. She is believed ideas all the time from people wanting to peoplethinkthatwhenthemusicstopsthey tohaveraisedthematterdirectlywith do the next big thing.” canselltheirshares.Theymightlose5%. Prime Minister Malcolm Turnbull. Hisentrepreneurialspiritdeveloped But when that happens, there are no buyers. Perthhasahubofcannabisexperts, atanearlyage.At11hetookhisfirstjob Ifyouareholdingaposition,that’sit.You inpartcentredonZelda,AusCannand at KFC and stayed for five years. “I was don’tlose5%,youlose95%.It’simportant their teams of experts. It is also home to a involved in two new store openings, so I not to get caught up in the hype. Things funding base. Karelis says there are about moved around the system. I learned that don’tgoverticalforever.Youwilldefinitely 40 people in the cluster he is involved with. ifyouworkedhard,youmademoney.And seethisinthecannabisspace.Itwillgoin They work within 10 minutes of the CBD youshouldsavemoneyandtrynottoblow waves,andweareinabitofawavenow. and regularly brainstorm. “We talk about it. The younger you are when you start Butitwillgouptoalevelandthenitwillgo whowehavemet,whatnewinformation building that nest egg the better. Resist the down a bit, and then go sideways for a bit. is relevant, where we go next, who do temptation to go boozing every weekend Butdon’tgetsuckedintothethoughtthisis wedoitwith,etc.Wehavetentaclesin with your mates, and you can get ahead goingvertical,anddoubleanddouble. Canada, California, Chile, Germany, Spain, without too much effort.” “When I first joined the financial ser- Denmark and Israel so we know what is His biggest mistake, he says, was getting vicesindustryasaresearchanalystfora going on. We are getting bombarded with caught up in the hype of investing. “Most stockbroker, there was a diamond boom on.

MONEYMO EY OCTOBER 2017 221 INTERVIEW

Work in progress ... Karelis initially thought the idea of medical cannabis was crazy, but when he looked into it “the penny dropped”.

There were some compa- nies off the north-west of Australia that wanted to mine diamonds from the sea floor. I was a young guy, and everyone else was driving Ferraris and making tons of money. I thought, here is my chance. It was T+10 settlement back then. You could buy a share and pay for it 10 days later, if at all. I remember on a Monday, the young guys said let’s go into these stocks. On the Tuesday we doubled our money, and the Wednesday we quadru- pled our money and on the Thursday again. It was just going vertical. patients and breast cancer sufferers are in We all thought we were clever. T+10 was theworks.Theplanistobesellingtreat- approaching so we decided that we didn’t ments at affordable prices within a couple want to pay for the shares. We will sell of years, once products are registered. It them. But the whole world was thinking the “You don’t know what is likely they could be sold in Australia, same thing. From something like a $100,000 Canada,ChileandGermany. profit – I don’t remember the exact numbers Cannabis crops will be grown in differ- – I ended up making a $10,000 loss. You get street cannabis has ent regions of Australia, because different sucked up in the hype.” strains of the plant grow best in different Corporate finance remained his strong been exposed to – it is climates and soils. One type might thrive in card, albeit with a medical focus. With an the tropical heat and thin soils of the Kim- undergraduate degree in biochemistry and potentially poisonous” berleys, and another in the cooler climes of microbiology, Karelis pursued an MBA. the Margaret River. The model for success With that, he managed investment funds in cultivating different strains is like the that focused on medical technology. One is being rediscovered. It was legal for 3000 wine industry where pinots grow best in big success was backing a former Austral- years and illegal for 70 years. The more I cool regions and chardonnays in warmer ian of the Year, Dr Fiona Wood, who is looked the more I realised there was a real ones. Big reds often like rocky soil. renowned for developing the spray-on skin medical effect.” Cannabis earned its nickname, weed, that saved many burns victims after the Investors now are encouraged by UK because it can grow almost anywhere but 2002 Bali bombings. Karelis was a director medical cannabis pioneer GW Pharmaceu- Karelis says that is not good enough for of that company, Avita Medical. ticals, which is valued by the Nasdaq stock medical use. “Cannabis is a very efficient He has since focused on “doing my own exchange at $US2.6 billion ($3.3 billion). Its scavenger of heavy metals from the soil. If thing, looking for interesting projects and main product is a mouth spray that treats that cannabis has been grown in the back working with interesting people”. He meets multiple sclerosis tremors. In Karelis’s of a wrecking yard and sucked up lead from regularly with a tight group to discuss view,itchargestoomuch.Hisplanisto the soil, that will go into your body. Same investments. At one gathering in 2014, a reduce the cost of cannabis medicines by thing with pesticides or chemicals. That is friend suggested he investigate medical havingclinicaltrialstotestthebestdos- a big difference between medical and street cannabis. His initial reaction was that it ages then making medicines, rather than cannabis. There is different chemistry. And was crazy. But at his friend’s urging he investigating how the treatments work. you don’t know what street cannabis has did it. “I started googling, and the penny Thatcantakeyears,beverycostlyand been exposed to. It is not medicine. It is

dropped. This is an ancient medicine that be unnecessary. Medical trials on autism potentially poison.” FRANCES ANDRIJICH

22 MONEY OCTOBER 2017 %* %* %* %* 3.20 5.20 6.00 7.00

13 80 10 www.latrobefinancial.com ASK THE EXPERTS

CASE STUDY Where to buy my first home WHITFIELD RICHARD

Ifagoodsaverlooksslightlyfurtherout,heshould find an affordable property that suits his needs

NAME: David Purdie has a good full-time job in technology apartment, what sort of house should STATUS: First home buyer. sales. He is a keen saver who keeps his he buy? What are the up-and-coming QUESTIONS: What are the affordable, expenses low and doesn’t have any debt. Brisbane suburbs that he can afford? up-and-comingsuburbsofBrisbanewhereI Davidwouldliketobuyaproperty, What sort of annual growth (or over, say, can buy a house for $450,000 to $500,000? preferablyahouse,thatiswithina a decade) is reasonable to expect in the ANSWERS: Buyafreestandinghouse 10-kilometre radius of the centre of Brisbane market? situated in an area that can provide Brisbane in the $450,000 to $500,000 David has $10,000 invested in an community and amenity and cater for a good pricebracket.Hewantsaminimumoftwo exchange traded fund, Vanguard lifestyle. There are some fabulous suburbs bedrooms and will live in it. He is prepared Australian Shares Index, which tracks the in your price bracket such as Chermside, tobuyafixer-upperbutnotadump. S&P/ASX300.Hewouldliketobuythe ZillmereandBanyo.Keepyourmoneyin But the Brisbane property market Vanguard Australian Property Securities cashandtermdepositsasyouwillbuya –particularlyapartments–ispatchy. Index ETF. “My knowledge of investing propertyinayearorso.Keepaneyeoutfor Apartments are under pressure from an isquitelow,”hesays.“Myquestionis the passing of the government’s legislation oversupply. If David avoids buying an where should I put my money? Should I to allow first home buyers to save for a continue investing in shares until I can depositwithintheirsuperfund–theFirst buy a property, increase super or perhaps Home Super Saver Scheme – which could be something else?” financially beneficial. Davidhasallhisinsuranceorganised, with life, TPD and salary continuance avid Purdie is on track to have “Should I continue cover. He is in an IOOF super fund and a20%depositforahousein wantstobringouthisUKpension,then D Brisbane by early next year. investing in shares until mergeitwithhisAustralianpension.Is The27-year-old,whowillreceivehis there any advice on how to do this as the permanent residency at the end of the year, I buy, or increase super?” rules have recently changed?

24 MONEY OCTOBER 2017 It’s better to be Fabulous safe than sorry spots that with the deposit will grow CATHERINE SHARPLES-RUSHBROOKE MARGARET LOMAS Catherine is manager at Advice Services Australia. Margaret is the founder and director of She is a certified financial planner and a self-managed Destiny Financial Solutions and the author super specialist. of nine books on property.

he decision on where to “park” At Advice Services Australia we pro- t’s critical that before you invest your money anywhere Tyour money until you buy your vide advice that is personalised for each Iyou learn as much as you can about how to invest well property is largely driven by how long it client depending on their circumstanc- to protect yourself from mistakes – and from spruikers, will be invested. As David is almost there es, needs and goals – so we would need whose best interests are not with you! And so my first with saving for his first home deposit to ask some more detailed questions to piece of advice is to get hold of a few good books and learn and has a short time frame (within the advise David on whether he should how to recognise the growth drivers necessary to result in next 12 months) I would prefer to see direct surplus cash towards repaying a growing property. While you’re saving, you can also be him place his savings in a cash and/or his mortgage, investing in a portfolio or gaining a great education. fixed-interest based investment such as salary sacrificing to super. When you buy your own home, it is an asset free of cap- a high-interest bank account or even a One of the advantages of directing ital gains tax. Therefore the necessity to see a good gain term deposit. surplus cash to repaying your mortgage over time is not quite as paramount as it would be if you As interest rates are low, this option rather than investing is that you get a were an investor who is likely to lose around 25% of any may seem a little boring; however, it’s guaranteed return on your funds equal gain to tax. When you sell the property to trade up, you are better to be safe than sorry. If David to your mortgage interest rate. If you able to take all of the profit you make and either invest it in parked the money in shares or property were to invest these funds elsewhere the next property or use it somewhere else. And so, rather and there was a market dip within the you would need to get an after-tax than simply focusing on the best areas for growth, which next 12 months, it would mean that he return equal to your mortgage interest may or may not be where you would be prepared to live, would have less money for his deposit. rate to break even. you must consider buying a place that provides you with When investing in property or shares One of the advantages of investing that balance between obtaining a good lifestyle for your you really need a longer time horizon surplus cash flow is that you are start- own needs and getting a property that will grow to enable to ride out any dips in the market (for ing to build a more diversified portfolio you to upgrade at some stage in the future. example, five-plus years). which will hopefully grow over time In Brisbane you have rightly identified that the apartment Given David’s age and goal of saving (although there is no guarantee with market carries some danger. In addition to increased supply for his home deposit within the next investment markets). in the pipeline, much of the stock is of a lower quality and 12 months, I’d normally steer clear of One of the advantages of salary I predict that there will be many issues in the future around increasing super contributions as the sacrificing to super is that, based on building sustainability. So your money will be better placed money is preserved (that is, stuck in the David’s salary, he will get an immediate in a freestanding house in an area that can provide commu- fund) until you meet a condition of tax saving for directing funds to super nity and amenity and cater for a good lifestyle. release (for example, retirement when rather than receiving them in his You have said that you want to buy within 10km of the David turns 60). Having said that, in the personal name (although once the CBD but limiting yourself to this is not necessary. It’s sim- last federal budget the government pro- funds are in super they are subject to ply not true that property within 10km of a CBD performs posed a scheme that will allow first strict cashing rules). best – in fact, at times the reverse can be true and in Bris- home buyers to save for a home depos- As for the pension, unfortunately, due bane such property has already grown to the point where it within their super fund – the First to changes in UK legislation in 2015, it is the best period of capital gain may be behind it for the Home Super Saver Scheme. At the time unlikely that David will be able to trans- foreseeable future. If you extend out to 15km there are of writing, the legislation had not yet fer it to Australia. At present only fund some fabulous suburbs that have the growth drivers of been finalised. The government has cre- members over the age of 55 are able to major transport infrastructure upgrades, gentrifying com- ated a calculator that can assist you transfer their UK pension to Australia, munities, improving household incomes and a strong fami- with working out the potential benefit and only under very strict conditions. ly demographic. These areas should be the next ones to of the scheme relative to saving the There are hefty tax penalties for not move in the growth stakes, and with $450,000 you should same amount in a standard deposit adhering to these rules. I would recom- be able to buy in quite easily. account (see budget.gov.au/estimator). mend that David seek advice from an Think Chermside, Zillmere and Banyo and you should be There are differing schools of thought adviser in the UK to ensure that any able to pick up something in your price range that doesn’t on whether it is worth investing once underlying investments within the UK need too much work. Zillmere in particular also offers you have a mortgage or whether you pension scheme are invested appropri- large blocks which, down the track, could have a second should direct surplus cash to repaying it ately and that he watches this space to dwelling added to allow you to also get into the investment as soon as possible. see if the rules change. space with what would amount to a free block of land.

MONEY OCTOBER 2017 25 ASK PAUL Q & A

Before investing any money Kim needs to ... Sort out the relationship

I am 46 and have recently separated from property. But that is now not going to happen. What NEED my husband. We have two children aged should my focus be now? Is investing some of the PAUL’S Q six and nine who are still living with me in $335,000 in shares a good or bad idea? Or do I need HELP? the family home but who will also be spending to play it safe and make some changes. plenty of time with their dad once he moves into Send your questions to: new accommodation. Ask Paul, Money Sorry to hear about your separation, Kim, but glad it is magazine, GPO Box The separation is amicable and at this stage all amicable. Quite frankly, I don’t want you to do anything 4088, Sydney NSW our finances are still shared. right now. Amicable is a great thing in a separation but 2001 or money@ I earn about $80,000 a year and my husband I certainly do not know, and you may not know at this bauer-media.com.au. about $90,000. My super is around $110,000 and stage, whether this a temporary situation or whether it my husband has about $135,000. will move to a divorce and a financial settlement. Sorry, but Paul can’t Our family home is worth about $975,000 with If the separation is permanent, it will be hard for you personally answer your a mortgage of $275,000. We have two investment to make investment decisions until you have a financial questions other than properties: a recent purchase worth $315,000 with settlement. Unfortunately, things do not always go in the Q&A column. a mortgage of $285,000 and the other worth about smoothly as assets are separated. Equally, assuming By submitting your $750,000 with a mortgage of $500,000. This you will keep your finances shared in a longer-term question to Money, second property is neutral after tax, and the plan separation does not seem realistic to me. If either of you consent to having is for my husband to move into it, which will leave you “re-partner” it could be rather complex. your question and the us out of pocket about $25,000 a year. All loans Personal relationships come before money. For- response you receive are currently interest only, with an offset account tunately, you have been very successful at building from Paul published attached to our principal place of residence. assets, meaning both of you would be in a strong in the print and digital We have access to about $335,000 in equity position. But unless I am missing something, my view edition of Money. in our home loan as a buffer/investment money, is that you need to sort out the longer-term nature of with which we were planning to buy another your relationship first.

26 MONEY OCTOBER 2017 Abigailisdoingwellbut... Loan rate is a rip-off

Iama39-year-oldwithno dependants and apart from Q my home loan I have no other outstanding debts/loans. I earn $60,000ayear(includingsuper contributions) and the value of my property is roughly $270,000. I have $10,000 in a savings account and I also have $17,000 left on my CBW home loan with a variable 4.79% interestrate.Myaimistopayoffmy homeloanassoonaspossible,then purchaseanotherproperty(andrent Trevor’s next step is to ... outmycurrentone).ShouldIputthe $10,000fromsavingsintomyhome Top up super to the max loan,thenstartanewsavingsplanto build a deposit for the next property? Wearedebatingournextmove HiTrevor,goodjobonbuildingassets.Let’s Firstup,Abigail,4.79%onahomeloan, andIhopeyoucouldhelpwith doaquicksummary.Youhaveequityof inparticularwhenyouhavegoodequity Q someclarity.Mywife(41)andI $510,000, including the offset account, in inyourhome,isacrappyrate.Youcould (48) earn around $200,000 between us. your home; about $250,000 in the investment save1%withanotherlender.Iknow Wehaveourhome,whichisvaluedat property; $670,000 in super; $625,000 in movingisveryunlikelywithsolittleleft $900,000 with a $639,000 interest-only shares; and $30,000 in cash, so a net wealth on your mortgage but go to your lender loan(setupasaninterest-onlyinvestment of $2.085 million. You plan to work for about andmakeitclearyouareunhappyabout property if we need to move) with another12years,takingyouto60. being ripped off and certainly would not $250,000 in an offset account. We have Thekeytostoppingworkisafullyowned borrow from them again. I would be very two young kids in primary school. homebutyoualsoneedinvestmentassets surprisediftheydidnotmoveyouto4% We also have: such as super. With about a decade to go, first orabitlowerveryquickly. • An investment property in Melbourne upI’dbetoppingupmysuperfundtothemax- Thenmyviewisthatyoustartlooking. valued at $700,000 with an interest-only imum deductible amount of $25,000 each. Of Ifyouseesomethingyoulike,atadecent loanof$454,000,rentingfor$465pw, course, it all depends on your budget but if you price,Ihavenoproblemwithyoubuying now turned cash positive after five years. have surplus income beyond this it would be withalevelofdebtyoucanaffordbefore • A joint self-managed superannuation greattopaymoreintoyourhomeloan.Clearly your mortgage is paid off. Make sure you fund with $440,000 in shares, and you are good savers and I suspect both of willstillbeOKifinterestrates rise, which combined $130,000 cash and $100,000 in these things are possible. they will at some stage. industrysuper(forlifeinsurance)andan Overthenextdecadeorsoifyouclear overseas fund. your mortgage and add between you some • $30,000undermywife’snameasan $750,000 to super, this along with the com- emergencyfundinanonlineeasyaccess pound returns on your super balance will put account. youinagreatposition.Prettyobviously,how • $500,000 in shares in my name, and my much you want to spend when you stop work wife has $125,000 in shares in her name, is a fundamental question. with dividends of around $30,000pa. If you want to take a look at your projected Whatismynextmove?DoIcontinueto positionwhenyouwishtostopwork,gotoa save into my offset account, pay down the planningtool,suchastheoneyouwillfindon homeloan,buymoresharesinmywife’s theMoneySmartwebsite.Idolikethissite.It name or invest through the SMSF.Or is isrunbyourregulatorASIC,meaningitisnot thereanythingIammissing?I would like some sort of sales tool. So give it a try – I think to retire by 60 if possible. you will find it a valuable use of your time.

MONEY OCTOBER 2017 27 ASK PAUL

Q Lachlan seeks best way to ... & Fund early A retirement I am 58, working part time and looking to retire Q fully later this year. I have $1.2 million in UniSuper accumulation, currently mostly invested in the growth option. My wife (54) hasn’t been working for some time – she has $100,000 in super and $200,000 in a bank account currently earning 2.7%. What is the best way to finance my time up to age 60 after I cease work in a few months. Is it more advan- tageous to live off the $200,000 until then and switch to retirement mode at 60, or to go immediately into retirement and start drawing down on my super? Matt has the deposit for a well-located property, so ... I could give you a pretty complex answer, Lachlan, but if I was in your situation Overcome the fear I’d keep it simple and proceed as you suggest. You will find that UniSuper has I am a 29-year-old working very impressed. Given the effort you given you a yearly return way above the as a civil engineer. I have have put in, I share your concern about 2.7% rate on the $200,000 in your wife’s Q worked around Australia in losing it. name, so I’d be using that first. fly in, fly out construction and But you should not allow this fear However, I am a bit troubled in saying managed to save $200,000. I lived to stop you from getting ahead. First, this. I assume you own a home and that with my parents on my six-day forget about the HECS debt – it is the you have carefully planned the capacity breaks, which helped me save cheapest and best loan in town. It will of your available capital to fund your money. I am now permanently living get paid off in time out of the additional retirement, at the standard of living you in Sydney earning $87,000pa plus tax levy on your salary. Next, chat to a wish to have, for decades to come. super and looking to start renting a lender or two about your capacity to So, given I am short of some key infor- place with my girlfriend. I have an borrow given your big deposit and your mation, my suggestion is to seek detailed $8000 HECS debt, own my car and new salary. professional advice before proceeding. have no bank loans. I have always In terms of losing the money, if you wanted to invest in property but have buy a well-located property at a reason- been quite hesitant as FIFO work has able price and you allow for bad things its end date and also I didn’t want to such as no tenant for a while and you risk my savings on a poor property have income protection insurance in investment decision. case you have an illness or accident I am hoping you can provide me outside work, plus you factor in interest with some advice on what would be rates rising, it is pretty hard to see how the best way forward. you would lose your money. Sure, at some stage property values Wow, $200,000 in savings at 29! Matt, will fall but if you hold a good, well-locat- I know the life of a fly in, fly out worker ed property for 10 years or more I, and is not an easy one and you have worked every other expert I know, will be hugely really hard to save this money and I am surprised if you lose money.

28 MONEY OCTOBER 2017 Michael’swifehastwosuperannuationaccountsbut... Old-style fund may be more generous

My wife is 37 and has $87,000 in wejustclosetheGESBfundandlosethe membersisthatwhentheywereestablished aGESBWestStateuntaxedsuper tax-free benefit but only have to pay one itjustdidnotoccurtoanyonethatlifeexpec- Q fund for government employees lotofaccountfees? tancywouldincreasesodramatically. andworkstwodaysaweekasamidwife. Withmuchlongerlives,theseearly,mainly She has recently ceased working for a Hi Michael. GESB Super (Government of government funds are, with hindsight, far too publichospitalandnowworksinaGP Western Australia) can’t give me any specific generous and unaffordable for future taxpay- clinic and consequently is ineligible to information about your wife’s fund under our ers,sotheyhavebeenclosed.Soastarting have the superannuation guarantee paid privacy laws, which is quite appropriate. But pointformeisthatIwouldnevertakeanyone intotheGESBfund. itlookstomethatsheisinoneofitsolder out of an old government-based fund without So, she had no other option than to government employee funds, which are no acloselookattherulesandbenefits.Ihave open another super fund (with good longer available. I suspect that if this is the nodoubtthatGESBwouldbedelightedtogo advice from Money’s Best of the Best case you may have to pay tax if you choose over the benefits of the fund your wife is in. edition). These untaxed funds are not to roll into another fund. Your idea of having all your super in one being offered to new members so we are As I don’t understand the details of your fund is spot on but at times “old” funds are keepingitopenfornow. wife’s fund with GESB, whether it leads to sogenerousyouwouldbemadtotakethe Wecan’tdecideifsheisbetteroff a defined benefit or a pension, or what the moneyout.MakeatimetomeetwithGESB keepingbothsuperfundsandperiodi- rulesorcostsinthefundare,Iampretty andgooveryourwife’sfund,rulesandbene- cally rolling into the untaxed fund but hamstrung.ButIcantellyouthatthereason fits. I think you will find you will be leaving it incurring double account fees. Or should these old funds have all been closed to new where it is.

MONEY OCTOBER 2017 29 THIS MONTH Destination: Croatia

Coastalbeauty...clockwise,fromabove,viewfromHvarfortress;asweet local speciality; cooling off in the clear waters off Solta island; a portal at the Cathedral of St Domnius at Diocletian’s Palace.

Five things to do

1. Stay: in Split, a buzzing Croatian coastal city forafurther45minutesifyouwanttocovermoreground. perched on the shimmering turquoise waters of the Adri- Several GameofThronesscenes were filmed here. aticcoast,withabackdropofdramaticmountains.Hang outinthemaze-likestreetsoftheoldtown,withancient 3. Eat: at the Makrovega bar for lunch or dinner, and ruins, historic sites, bars, cafes and restaurants at every don’t miss the splitska cake (dried fruit, nuts and vanilla turn.Bookaccommodationdowntown,awayfromthe cream) at the Luka ice-cream cafe. austere Soviet-style suburbs. It’s well worth taking a side triptothehistoriccityofTrogir,setwithinmedievalwalls 4. Take: a boat from Split to the peaceful island of SMART SPENDING on a tiny island. If you want to avoid the summer crowds, Hvarwhereyoucanswimoffthelocaldockandbeaches. travel in the shoulder season. Eatflatbreadstoppedwithlocalfreshfigs,cheesesand hamatFigcafeandbar.Forpanoramicviews,walkup 2. Visit: Diocletian’s palace, a UNESCO world heritage thehilltotheFrenchfortbuiltbyNapoleon’stroops. siteandoneofthemostimpressivemonumentsfrom Ancient Rome. Built in the 4th century AD for the Roman 5. Snorkel: and swim in the crystal-clear, blue waters emperor Diocletian’s retirement, the grand marble palace ofthenearbyBlueLagoonandeatfreshlycaughtsea- is now the old town of Split, housing shops, apartments, food at the local taverna. The boat from Split also stops restaurantsandbars.Ithasbeautifulchurches,acathedral at the small, beautiful island of Solta. and monastery. Book a 75-minute walking tour or extend it ISABEL VAUGHAN FAZA BIJAKSANA/GETTY FAZA

30 MONEY OCTOBER 2017 DRIVING PASSION WINE Hybrid SUVs SPOTLIGHT break the gas 2016 Devil’s Corner Sauvignon guzzler tag Blanc $20

ybrid vehicles are becoming more This is a terrific Hcommon on our roads and while $44,490- $50,490- $90,160 - sauvignon from the Toyota Prius is the best known there Brown Brothers’ are a growing number of electrified $69,190 $55,490 $108,610 Tasmania label. SUVs that are hard to differentiate from Nissan Pathfind- Mitsubishi Out- Lexus RX450h It’s beautifully conventional models. er Hybrid lander PHEV The RX450h range made and quite Large vehicles such as SUVs benefit There are 2WD and The two variants, the uses the same 3.5-litre delicious. This from hybrid technology because the 4WD variants, with the LS and Exceed, are V6 as the non-hybrid is a restrained electric motor helps reduce fuel use and latter with range-top- AWD and feature a RX350 but in this case sauvignon boost power. Some of these are plug-in ping creature comforts. 2.0-litre four-cylinder it is augmented by a blanc that has hybrid electric vehicles (PHEV) with bat- Both feature a 2.5-litre petrol engine and pair of electric motors positive bright teries that can be charged while parked, four-cylinder super- two electric motors that increase power flavours – ripe allowing them to cover modest distances charged petrol engine powered by lithium to 230kW, shaving tropical fruits without consuming a drop of fuel. and an electric motor. ion batteries. 0.3sec off the 8.0sec of guava and There are several hybrid SUVs available Pros: The lithium ion Pros: It can travel 0-100km/h time. lychee – and in Australia, including relatively affordable batteries are charged up to 54km on bat- Pros: Improved fuel a finish that models such as the Nissan Pathfinder by the engine and teries alone when economy, with a hatch- is crisp, clean Hybrid, Mitsubishi Outlander PHEV and regenerative braking, fully charged and back-like 5.7L/100km and fresh. Lexus NX300h ($56,100) through to the which harnesses and has a combined fuel compared with Lexus RX450h, Volvo XC90 Inscription stores the kinetic ener- economy rating of 9.6L/100km in the Hybrid ($120,900), Mercedes-Benz gy caused when the 1.7L/100km. non-hybrid RX350. SPLURGE GLE500e ($124,900) and Range Rover vehicle slows down. Cons: The need to fit Cons: Polarising Sport SDV6 Hybrid ($187,900). Cons: The reduction batteries under the looks. You pay for the 2015 Kooyong Expect plenty more by 2020 once the in fuel use isn’t as floor means the PHEV privilege if you want ‘Haven’ Pinot Noir strict new Euro 7 emission standards dramatic as it is with has only has five seats. the range-topping $75 come into effect. plug-in hybrids. mitsubishi- Sports Luxury. DAVID BONNICI, WHICHCAR.COM.AU nissan.com.au motors.com.au lexus.com.au Mornington Peninsula’s Kooyong has five pinots including three EXTRAVAGANCE impressive single vineyard wines. My favourite of On the ball these in 2015 is Have some fun with this the Haven. It You and Me table tennis has a dramatic bouquet that table, which can double is intense and as a dining table. voluminous with bright raspberry, strawberry How much: Starts at $5345 and mulberry for standard size. aromatics, Where to buy: ajar.com.au enticing you into its silky smooth texture and gentle lingering finish. PETER FORRESTAL

MONEY OCTOBER 2017 31 THIS MONTH

SMART TECH Three accessories to put on your must-have list s I poked around my home to Aresearch this month’s column, it struck me how personalised the idea of “essential” tech is. Aside from every- body’s central devices – your notebook, smartphone and so on – what acces- sories are truly must-have in your own daily workflow? What is it? OtterBox What is it? Samsung T5 What is it? Cygnett For me, I’d find it hard to part with Defender Portable SSD ChargeUp Ultra Portable innumerable things. From an ergonom- How much? $69.95 (for How much? From $199 Power Bank ics perspective, a good, large monitor iPhone 7) (250GB) How much? $129.95 at head height – paired with a quality Pros: If you drop an Pros: Once upon a time (20,000mAh) desk chair – is vital, so I don’t strain my unprotected phone onto external hard drives were Pros: We’ve all been neck looking down at a laptop display. hard ground, there are big, bulky things that there. You’re trying to fin-

SMART SPENDING Then there’s audio. I can't handle tinny three key possibilities: the required their own power ish up some work on the notebook speakers, so a small 2.1 sound screen or casing shatters supply. Then they became train ... and bam! You hit system is a crucial accessory. A surge (likely), the whole thing miniaturised. But the real 0% battery. It’s a common protectorisagreatideatoprotectyour dies (unlikely), no damage cutting edge is SSD, which occurrence, and it’s so equipment from power spikes, and then results (unlikely). So a is lightweight and has no easy to avoid. There are there are protective laptop and tablet shock-absorbing case is moving parts. Samsung’s oodles of battery banks sleeves, noise-cancelling headphones to pretty much mandatory, T5 squeezes up to 2 tera- but larger units like this shut out distractions, wi-fi networking and the Defender’s “tri- bytes of data into a credit- Cygnett offer enough add-ons ... the list is endless. ple-layer defence” gives card-sized package. charge for notebooks in But if I were to limit it to just three good protection. Cons: SSD is light, pow- addition to mobile devices, keytechmust-haves,they’dprobably Cons: Defender is prob- er-efficient, fast ... and and a pair of USB ports be a good phone case, a backup ably overkill for most peo- expensive. That 2TB model meansyoucanchargetwo drive and a spare battery – basically, ple, in terms of expense costs $1249 but it’s an gadgets at once. a comprehensive insurance policy to and ruggedness. But any ultra-convenient backup Cons: Costly, but so’s guard against Murphy's law happening case is better than none. for all your digital data. running out of juice. at the worst of times. PETER DOCKRILL otterbox.com samsung.com/au cygnett.com

GIVE IT UP WEBFIND The Australian Women’s Health Diary 2018 egies. Over the past 19 years the diary What is it? Nowinits20thyear has raised $13.3 the Australian Women’s Health Diary million and last year HARDTOFIND.COM.AU is an annual initiative from Breast alone the profit was Cancer Trials (formerly known as the $1.08 million. Breeeastcanceristhe Lookingforauniqueitem Breast Cancer Institute of Australia). most common cancerca in women in that would make a great gift? As well as being a practical diary it Australia and New Zealand. Then this site is a must. It has includes health information for women a range of products, including of all ages plus a handy budget planner. How to donate: Youcanbuythe items for the home, jewellery, diary for $18.95 from newsagents, artwork and fashion, from Where your money goes: Funds Woolworths supermarkets, Avon rep- independent craftspeople and raised from the sale of the diary go resentatives, online at magshop.com. manufacturers in Australia to clinical trials research into breast au or breastcancertrials.org.au or by cancer treatment and prevention strat- phoning 1800 423 444. and around the world.

32 MONEY OCTOBER 2017 Paul Clitheroe PAUL’S VERDICT

Mortgage is zero, so now it’s time to invest

’m a single 43-year-old Iearning $60,000pa and have $38,000leftonmymortgage. I have $40,000 available in my redraw account, $115,000 in super but no investments. I have been focusing on paying off my mortgage but now feel I should be investing to create some income for my future. I have been thinking about buying an investment property but know little about investing in property or shares. What would you suggest? Melissa Paul’s verdict: Either top up

super through SIMON CASSON salary sacrifice or that you have seen it grow in value. You also it is going and ensure you are in a good fund buy a property own shares through your super fund and you with low fees. Keep up the savings discipline will have seen the benefits of that. But a well-located investment property and apply good old-fashioned So let’s go with a pretty simple but also is also a perfectly sensible option. However, common sense pretty effective plan. First, why don’t you top there are some key rules. up your super using salary sacrifice? On the First, take a close look at your budget and top part of your income – the amount from chat to a lender or two to work out your bor- $37,000 to $60,000 – you will be paying rowing capacity. Then you need to plan around ongratulations Melissa – a great job in around 35% tax, including the Medicare levy. the bad stuff. How will it impact you if and getting your mortgage down to zero. Any money you direct your employer to put when interest rates go up? Would you be OK CIn fact, with a $38,000 mortgage into super, up to $25,000 a year, is taxed at if you could not find a tenant for a period of and $40,000 in your redraw account you are 15%. There is an instant 20% benefit to you. time? What would your rent be and, of course, one of the few people I know with a positive A dollar you earn in this tax bracket gives you the tax benefits to you from negative gearing, mortgage. The bank owes you! You have also about 65¢ to invest. The same dollar in super which is any loss you may have after interest made a very good start to a really good super gives you 85¢ to invest. on your loan and costs of running the property balance for when you stop work. I really don’t Super is simply a tax vehicle that invests in are deducted from the rent you get? think I need to ask if you do a budget. Clearly areas such as property, shares, infrastructure I would also want you to spend plenty of you manage your cash flow carefully to have and interest-earning investments such as time looking at properties in an area you achieved this outcome. bonds. You can make decisions here by select- know. Avoid property-selling seminars like the Sure, you may have won the lottery but I ing growth, balanced or conservative type plague. With property, you need to be your doubt it! I think that, like me, you would be fully options. At your age, it makes sense to go for own researcher and make your own decisions. aware that a big lottery win is about 12 million a growth type option. You have decades for Finally, don’t take too much risk by overbor- to 1. Mind you, entering a lottery is a brilliant your super fund to grow in value, so short- to rowing. You are in great financial shape; keep way to donate extra tax dollars to the govern- medium-term ups and downs are not really a up your financial discipline and apply good ment. However, your words suggest someone big deal. Do remember that the $25,000 maxi- old-fashioned common sense to investing. who runs their cash flow really well. That, of mum for tax-deductible contributions includes course, is the key to success with money. It is your boss’s compulsory contributions. ASK YOUR QUESTION quite aggravatingly simple but too few of us As you own a property already and you do it. Just spend less than you earn and apply should have share exposure inside your super If you have a question, email money@bauer- media.com.au or write to GPO Box 4088, the surplus to owning decent assets such as fund, I am quite ambivalent about whether Sydney NSW 2001. Questions need to be 150 property and shares. you max out your super, buy an investment words or less and you must be willing to be Now to your next step. You actually do know property or do a bit of both. Super is a simple photographed. Readers who appear on this a fair bit more than you say. You have owned a choice due to the tax breaks and the simplicity. page will receive a six-month subscription. property for a long time and I have little doubt You basically just need to keep an eye on how

MONEY OCTOBER 2017 33 COVER STORY

WHY NEGATIVE GEARING

BRYCE HOLDAWAY The regulators and banks have made life tougher for property investors. But all the uncertainty makes it a good time to consider this powerful way to create long-term wealth

34 MONEY OCTOBER 2017 s negative gearing a strategy that still works? investor lending year on year for It’s a timely question. Let’s face it, property each lender. yields are low, capital growth is in question, • Interest rate – increased rates the regulators want to slap limits on investor for interest-only lending to be higher than lending and the banks have responded with for owner-occupier lending. Ihigher interest rates. Throw in the changes to deprecia- New debt – tightened servicing requirements to • tion perks and the removal of the travel allowances and increase assessment rates on new debts. it’s enough to make the 1 million or so Aussies who run • Existing debt – assessment rate on existing debt a property investment at a loss – and those thinking of to be considered principal and interest even if paying going down that route – to ask the big question. interest only. I would argue yes, because ultimately negative gear- • Postcode restrictions – some lenders have managed ing is not a strategy; put simply, it’s a tax outcome that their risk by limiting lending on select postcodes. represents a moment in time. Like a business owner who • Rental income – some lenders have further discount- Property makes a loss in the start-up phase to ultimately make ed rental income assessment from the standard 80% to profits and build value over the medium to long term, 75%, and in some cases by as low as 60%. investment so too does a property investor consider making a loss • Exceptions – if applications don’t meet policy then for only as long as it takes to build a big enough wealth it’s simply unacceptable, with lenders unwilling to step is a game of base so that they too can move into positive-gearing outside strict lending policy to provide “exceptions”. territory, which will provide them with the self-funded This is in contrast to owner-occupier lending where retirement outcome they desire. Negative gearing is a they’re still happy to consider policy exceptions on a finance just means to an end, not a permanent way of life. case-by-case basis. So, in my view, the real question here is whether resi- • No investor lending – some lenders are pulling out as much it dential property still remains a good investment because of the investment lending game altogether. the taxation benefits you receive through negative gearing As well, the recent federal budget proposed the fol- is a game of are temporary but, if done correctly, the impact of the lowing changes that will affect any property investors capital growth and rental income from building your who exchanged after 7.30pm AEST on May 9, 2017: bricks and portfolio will be lasting. • Depreciation – the government will limit plant But before we ponder that question, let’s look at exactly and equipment depreciation deductions to outlays what headwinds property investors face. actually incurred by investors in residential real estate mortar properties. Essentially, this means property investors Winter has come can only claim depreciation on dishwashers, fans and The Australian Prudential Regulation Authority (APRA) other fixtures they’ve paid for themselves. Previously, this year introduced restrictions that have impacted investors who bought established properties could lending for investment purposes. APRA is the prudential continue to claim depreciation on items they acquired regulator of the Australian financial services industry, as part of the purchase. overseeing banks, credit unions and building societies • Travel claims – all travel deductions relating to to protect the financial wellbeing of the community. inspecting, maintaining or collecting rent for a rental It is in this protective role that it has implemented property will be disallowed. This applies within your new regulations as part of an ongoing response to what own state as well as interstate. it describes as an environment of high housing prices, Property investment is essentially a game of finance, high and rising levels of household debt, slower income just as much as it is a game of bricks and mortar, so growth and historically low interest rates. As a result, these lending changes are significant. APRA will get the banks have adopted the APRA recommendations what it wants as it achieves a desired slowdown in as follows: investor lending but I don’t think that is a bad thing, as • Deposits – increased need for larger deposit as most neither investors nor owner-occupiers want an unstable lenders will no longer accept a loan-to-value ratio (LVR) property market. greater than 90% for investors. Equally, the hit to cash flow from the reduction in • Interest only – for most lenders, for any borrowing above depreciation and travel allowances is not ideal. Howev- an 80% LVR, interest-only facilities are no longer available, er, if Melbourne and Sydney were to keep on charging regardless of loan purpose. Furthermore, the bank’s loan ahead as they have been over the past few years, then book cannot have more than 30% in interest-only lending. we would have set ourselves up for some pain in the • Investor lending – no more than 10% growth in future. Measures to avoid that are warranted.

MONEY OCTOBER 2017 35 COVER STORY

Rachel STRATEGY: GOOD YIELD AND STEADY GROWTH

he’s a 30-year-old single who Rachel has saved $15,000, which is not insteadofreceivingataxbenefitfrom Sis renting and earning $65,000 sufficient to get into property. However, negative-gearing benefits she will be a year. Currently her yearly bills, herparentsarepreparedtogosecurity contributing to the tax revenue. Therefore, including rent, and lifestyle expens- guarantorsothatshecanborrowthefull the tax outcome will shift from negative es are $23,000 and $15,000 amount plus the additional 6% acquisition gearingtopositivegearingandshewill

CASE STUDY CASE respectively. For Rachel to invest costs,therebyavoidingmortgageinsur- use the post-tax surplus to further reduce in property, it’s important to preserve her anceandalsoallowinghertogetinterest- the debt. monthlycashflowbasedonherincome only lending. ForRachel,investinginthisproperty sothestrategyhereistolooktobuyher The table shows that for the first eight willcontributetoheroverallwealththe a higher-yielding property for $300,000 yearsRachelwillrelyonnegativegearing longer she holds it, as after 20 years it has with a capital growth target of 4.5% a year as her pre-tax cash flow will be negative. a net cash flow position of $17,964 and her and a gross yield of 5.5%. But in year nine it will turn positive and wealth has increased modestly (see table).

RACHEL’S CASH FLOW STATEOFWEALTH GROSS TAX NET PROPERTY RENTAL ANNUAL LOAN INTEREST TOTAL YEAR VALUE EQUITY YEAR CASH BENEFIT CASH VALUE INCOME EXPENSES AMOUNT EXPENSES COSTS FLOW PAYABLE FLOW 0 $300,000 -$18,000 0 $300,000 $15,180 $5669 $303,000 $19,504 $25,173 -$9993 $2998 -$6995 10 $465,891 $147,891 1 $313,500 $15,863 $5856 $296,684 $19,081 $24,937 -$9074 $2722 -$6352 20 $723,514 $405,514 2 $327,608 $16,577 $6050 $289,896 $18,618 $24,668 -$8091 $2427 -$5664 3 $342,350 $17,323 $6251 $282,373 $18,106 $24,357 -$7034 $2110 -$4924 4 $357,756 $18,102 $6459 $274,080 $17,543 $24,002 -$5899 $1770 -$4129 5 $373,855 $18,917 $6673 $264,976 $16,926 $23,599 -$4682 $1405 -$3278 6 $390,678 $19,768 $6895 $255,025 $16,253 $23,148 -$3380 $1014 -$2366 7 $408,259 $20,658 $7125 $244,182 $15,520 $22,645 -$1987 $596 -$1391 8 $426,630 $21,587 $7363 $232,407 $14,726 $22,089 -$501 $150 -$351 9 $445,829 $22,559 $7609 $219,655 $13,866 $21,475 $1084 -$325 $759 10 $465,891 $23,574 $7863 $205,869 $12,938 $20,800 $2774 -$832 $1942 11 $486,856 $24,635 $8126 $190,986 $11,936 $20,062 $4573 -$1372 $3201 12 $508,764 $25,743 $8398 $174,953 $10,858 $19,257 $6487 -$1946 $4541 13 $531,659 $26,902 $8680 $157,721 $9701 $18,381 $8521 -$2556 $5965 14 $555,583 $28,113 $8971 $139,234 $8460 $17,432 $10,681 -$3204 $7477 15 $580,585 $29,378 $9273 $119,435 $7133 $16,406 $12,972 -$3892 $9080 16 $606,711 $30,700 $9585 $98,265 $5714 $15,300 $15,400 -$4620 $10,780 17 $634,013 $32,081 $9908 $75,667 $4201 $14,109 $17,972 -$5392 $12,580 18 $662,544 $33,525 $10,242 $51,576 $2589 $12,832 $20,693 -$6208 $14,485 19 $692,358 $35,033 $10,588 $25,928 $874 $11,462 $23,571 -$7071 $16,500 20 $723,514 $36,610 $10,946 $0 $0 $10,946 $25,663 -$7699 $17,964 Assumptions: interest rate 6.5%; rental growth 4.5%pa; 32.5% tax rate; zero depreciation; occupancy rate 92%pa; ongoing holding cost 1.5% of property value per year

36 MONEY OCTOBER 2017 WHY NEGATIVE GEARING STILL WORKS

Why invest in property? The first fundamental for any property investor is asset But despite these speed bumps, investing in property selection. Picking a poorly performing asset whose value remains an attractive proposition for building real wealth doesn’t grow or, worse, falls is by far the biggest derailer in the long term. There are many reasons but here are a to any portfolio. So it’s important to know that not all few to remind ourselves why: property makes for a great investment. Therefore, know- • Big market – according to CoreLogic, Australian ing the difference between investment-grade property residential real estate is valued at $7.3 trillion, with over versus investment stock is a priority. This point alone 9.8 million dwellings, an LVR of 23.4% with outstanding is what determines your ultimate success or failure as a mortgage debt of $1.66 trillion. The opportunities to property investor, as mistakes are often hard to recover build wealth in this market are substantial with a very from. I see too many investors who think it’s simply strong secondary market given it forms an essential about putting their name on a title and magically it will human need. To put its size in context, Australian super go up in value. The law of supply and demand exists in If you hold is next biggest with $2.3 trillion and Australian listed the property market as it does in any market, so ignore stocks at $1.8 trillion. this fundamental at your peril. for the long • Self-funded retirement – the growing awareness The second fundamental is to correctly finance the that superannuation alone will not be enough and the property. I mentioned earlier that property investing constant changes to the rules. As well, the uncertainty is a game of finance so getting a borrowing capacity is term, the around the amount of government pension that will simply not enough. You must get a borrowing strategy be available and the desire to be less reliant on the that takes into account not only the current purchase interest on government makes it attractive to create a self-funded but also planning for any future purchases. Providing a retirement through property. buffer as well as ensuring that the banks are not dictating the original • Leverage – this is very appealing for a property the terms through crossing the security will give you the investor, as the ability to control a larger asset and agility to navigate whatever the market throws at you. purchase get the compounding benefits of the larger value is Third, investing in property is all about time in the the single reason why we choose property over any market. Savvy property investors see short term as being other asset class. Combine leverage and compounding 10 years and long term as being 20-plus years. The power price is with an investment-grade property and the results are of compounding is brilliant but only if you give it time life-changing. to work its magic. equivalent • Low volatility – particularly in the capital cities and The most successful investors we’ve ever interviewed surrounding areas where the demand exceeds supply. on our podcast or met in person are those who have to the kids’ While property performance is never consistent and been investing for more than 20 years and navigated linear, investment grade property rarely loses value through many cycles, and their portfolio size reflects quickly or in high proportions. the patience they’ve shown to accumulate. The interest lunch money • Simplicity – it’s tangible and easy to understand. on the original purchase price is now equivalent to their After all, it’s an essential need: shelter. kids’ lunch money! If you hold for the long term, your • Control – unlike other investments, you’re in full reliance on the negative-gearing benefits well and truly control of your property investment; you can make all diminish over time. the decisions and have control over all your returns. And, finally, to the common question of “When should You can add value to your investment without having I buy my next investment property?” The answer is the to seek approval from a large company or fund manager. same no matter what the market sentiment is. Assuming • Government backed – let’s be honest, the collapse you’re a long-term investor (not a speculator) then it’s of the housing market would be a disaster for the gov- simply “when your cash flows allow”. If you have planned ernment of the day at the ballot box, so protecting this your cash flows appropriately, taking into consideration very important asset class is not only in the national your medium-term needs (growing family, changing interest but politically underpinned. jobs, 12-month sabbaticals, job security), not just the • Alternatives – they often appear harder to under- here and now, then if you have surplus cash flow above stand, are riskier or are perceived as a poorer return on your needs then you should consider adding a property investment. An investment-grade property offers better to your portfolio. It’s as simple as that. performance than money in the bank. The growth of median house prices in the capital cities for the past 35 years has not been a straight line – The fundamentals and in some cases it goes down – but the overall trend To build a portfolio that weathers any storm, it’s impor- is up and this further reinforces the benefits of playing tant to ensure that you get the fundamentals right from the long game. the beginning. This enables you to positively plan your OK, let’s see all of this put into action with two case financial future while creating a safety net to defend studies: Rachel on the previous page and Matt and Jayne your portfolio from external factors outside your control. on the following page.

MONEY OCTOBER 2017 37 COVER STORY

Matt and Jayne STRATEGY: STRONG GROWTH AND AVERAGE YIELD

hey are married with one child wearesuggestingtheypurchaseaproperty negative gearing benefits are lasting one Tandbothintheirearly40s. for$900,000,chasinga7%capitalgrowth yearlongerthanRachel’sasaresultofthe Theyhaveahouseholdincomeof rateanda3%yield. lower yield on this type of property. How- $200,000 and family home worth They would structure their lending so ever,inthe10thyearitshiftsfromanega- $750,000 that is mortgage free. thattheycanreleaseequityfromtheirown tively geared scenario to a positively geared

CASE STUDY CASE They also have $15,000 in savings home to fund the 20% deposit plus 6% scenarioandthispositivecashflowwillalso astheyhavefocusedonpayingofftheir costswhilegettingastandaloneloanof help pay down the debt. home loan. Currently their yearly spend- 80%fortheinvestmentproperty.Thiswill ForMattandJayne,itisclearthatthe ings on bills and lifestyle are $30,000 and ensure that they also avoid mortgage insur- overall contribution to their wealth from $40,000 respectively. ance and get interest-only lending. investing in this property could be sig- Giventheirstrongmonthlysurplusand From the table below, you can see that nificant. The net cash flow position after strong cash flow, they are in a position thenewsisverybright.Whiletheyarechas- 20 years is $19,165 and their wealth has where they can go for a growth asset, so ing a growth asset, it does mean that their increased significantly (see table).

MATT&JAYNE’SCASHFLOW STATEOFWEALTH GROSS TAX NET PROPERTY RENTAL ANNUAL LOAN INTEREST TOTAL YEAR VALUE EQUITY YEAR CASH BENEFIT CASH VALUE INCOME EXPENSES AMOUNT EXPENSES COSTS FLOW PAYABLE FLOW 0 $900,000 -$54,000 0 $900,000 $24,840 $15,413 $939,000 $59,723 $75,135 -$50,295 $19,112 -$31,183 10 $1,700,436 $816,436 1 $963,000 $25,958 $15,904 $894,995 $56,739 $72,642 -$46,685 $17,740 -$28,945 20 $3,482,716 $2,528,716 2 $1,030,410 $27,126 $16,411 $846,738 $53,456 $69,866 -$42,740 $16,241 -$26,499 3 $1,102,539 $28,347 $16,935 $793,534 $49,841 $66,776 -$38,429 $14,603 -$23,826 4 $1,179,716 $29,622 $17,475 $735,070 $45,876 $63,351 -$33,729 $12,817 -$20,912 5 $1,262,297 $30,955 $18,034 $671,018 $41,545 $59,579 -$28,624 $10,877 -$17,747 6 $1,350,657 $32,348 $18,611 $601,305 $36,837 $55,447 -$23,099 $8778 -$14,322 7 $1,445,203 $33,804 $19,206 $525,629 $31,730 $50,936 -$17,133 $6510 -$10,622 8 $1,546,368 $35,325 $19,821 $443,620 $26,201 $46,023 -$10,698 $4065 -$6633 9 $1,654,613 $36,915 $20,457 $354,912 $20,225 $40,682 -$3768 $1432 -$2336 10 $1,770,436 $38,576 $21,113 $259,121 $13,777 $34,890 $3685 -$1400 $2285 11 $1,894,367 $40,312 $21,791 $155,840 $6,829 $28,621 $11,691 -$4443 $7248 12 $2,026,972 $42,126 $22,491 $44,644 $673 $23,165 $18,961 -$7205 $11,756 13 $2,168,861 $44,021 $23,215 $0 $0 $23,215 $20,807 -$7906 $12,900 14 $2,320,681 $46,002 $23,962 $0 $0 $23,962 $22,040 -$8375 $13,665 15 $2,483,128 $48,072 $24,734 $0 $0 $24,734 $23,338 -$8869 $14,470 16 $2,656,947 $50,236 $25,532 $0 $0 $25,532 $24,704 -$9388 $15,316 17 $2,842,934 $52,496 $26,356 $0 $0 $26,356 $26,141 -$9933 $16,207 18 $3,041,939 $54,859 $27,207 $0 $0 $27,207 $27,652 -$10,508 $17,144 19 $3,254,875 $57,327 $28,087 $0 $0 $28,087 $29,241 -$11,111 $18,129 20 $3,482,716 $59,907 $28,995 $0 $0 $28,995 $30,912 -$11,746 $19,165 Assumptions: interest rate 6.5%; rental growth 4.5%pa; 37% tax rate; zero depreciation; occupancy rate 92%pa; ongoing holding cost 1.5% of property value per year

38 MONEY OCTOBER 2017 WHY NEGATIVE GEARING STILL WORKS

FACT FILE

YIELD V GROWTH Strong rental returns from a property might be great but in the long term a property with higher capital growth will give you a better result than one with a good rental return. Let’s take a look at how they compare.

PROPERTY 1 Purchase price: $600,000 Capital growth: 7%pa Rental return: 4%

After 30 years Equity: $3,967,353 This too shall pass 1985 and reintroduced in 1987, the GST was introduced Income: $170,742 From these two case studies you can see that over in 2000 with huge uncertainty for investors following 20 years you need the negative-gearing benefits in the major change in tax scales, we weathered the Asian the early stage of accumulation but over time you financial crisis of 1997 and of course most recently we end up paying tax from the surplus rents, which off- were faced with the GFC. PROPERTY 2 sets the negative gearing benefits. That’s why we It may be winter now but it doesn’t mean that summer Purchase price: need to encourage education about the benefits of will never come again, and if you have an investment-savvy $600,000 long-term investing, not short-term speculation. mortgage broker to help you navigate the finance waters Capital growth: 4%pa As a footnote to these two illustrations of real-life as well as a long-term strategy, then it’s simply part of Rental return: 7% property investing, in terms of strategy, with all else the constant “white water” that is property investing, being equal, chasing capital growth is our preference as it’s never “clear water”. But now could be a terrific over chasing yield. As the fact file on the right demon- opportunity to acquire great assets while the market is After 30 years strates, ultimately the income from the “growth” prop- uncertain. If anything, hopefully the changing landscape Equity: $1,346,039 erty exceeds the income from the “yield” property, and will discourage short-term thinkers and encourage people Income: $130,983 over time the wealth base is significantly higher too. to have a long-range perspective. After 30 years Property 1 is worth $2,621,314 more than So when faced with the ever-present white noise of Property 2. For Rachel, her circumstances dictated that the markets, I often find comfort in the words of the we focus more on yield because cash flow is tight but greatest long-term investor of our time, Warren Buffett, Matt and Jayne had better cash flow so therefore could who tells us to be fearful when others are greedy and chase a growth asset. greedy when others are fearful. M So when we ponder the question of whether investing in property and negative gearing are still worthwhile Bryce Holdaway is partner of specialist property investment in the current market, it’s important to keep all this in advisory firm Empower Wealth, co-host of The Property perspective. A quick history lesson will remind us that Couch podcast, co-author of The Armchair Guide to there have been speed bumps in the past that we have Property Investing and co-host of Location Location faced and withstood. Negative gearing was abolished in Location Australia, on Foxtel’s The Lifestyle Channel.

MONEY OCTOBER 2017 39 MY MONEY GOLD STAR CARS Guide to best buys STORY WHEELS STAFF

Buying and lthough a car is usually the second most withourresearchindicatingthatwhiledieselpricesare running a car expensivepurchaseweevermake,it’s reasonably stable, unleaded prices can be higher or lower often one that’s approached on anything than them depending on the price cycle. canputabig but an objective basis. Car companies are With an emissions cloud hanging over diesels, then strain on the past masters at getting us to spend with there’s the question mark over which will be worth more Ahearts rather than heads, so Money has partnered with atresaletime.Andcanhybridsorelectriccarsjustify budget so the experts at Wheels magazinetofocusoncarbuying their typically higher price tags in energy savings? with a wholly objective financial perspective. Insurancecoststendtoincreasewithcarsize,price Money has WhilesortingthediamondsfromthedudsisaWheels andperformance;however,therearecertainlyexamples teamed with cornerstone,siftingthroughthenewcarmarkettosep- ofequivalentmodelswithwildlydifferentpremiums. arate the value picks from the money pits is the work of Call us cynical but six-month service intervals are Wheels to theannualGoldStarCarsawards. surely a means to rake in dollars, rather than a genuine find the best The devil, as we’re reminded each year, is the insidious technical requirement. Or is it that the unique conditions diseasethatisdepreciation,whichmakesupthebiggest inAustraliacallforaservicetwiceasoftenasisrequired valueinthree chunkofthecostofowninganewcarinthefirstfew for the same model overseas? Hmm … thankfully most years.Allcarslosevaluethemomentthey’redriven carsworkonascheduleofaserviceonceayear. categories: from the showroom, and quickly thereafter. A good one The advent of the five- and seven-year warranty has young willloseonlyabout30%offitsnewpriceinthreeyears, given brands with traditional three-year, 100,000km whileapooronewillretainonly30%. warranties something to think about. couples/ Yetanewcardoesn’tstopatdepreciationinitsquestto Thoseraremodelsthatcancombinedecentdepreci- singles, family emptyyourwallet.Therearefuel,insurance,servicingand ation, moderate fuel and insurance bills, a long service thingsthatcunninglyfailjustoutsidethefactorywarranty. interval and/or a more generous warranty than their and premium Aturbo-dieselwillcostmorebuttypicallyuseless classmates rise as Gold Star Cars. fuelthananequivalentpetrolengine,butwhichoneis Weappliedafurtherfilteringprocesstocomeupwith less costly to run might depend on the day of the week, the Gold Star Cars to match three profiles for Money.

40 MONEY OCTOBER 2017 In association with

NOVATED LEASES Gold Star criteria

Class ceiling Purchase price here business- There is no upper limit on the Most new-car buyers set out with Wes want to price of cars eligible for Gold an approximate budget in mind offer an extra incen- Star Cars analysis. The fact that but the real cost of owning the car tive to employees, the money lost in three years on is depreciation, which is where salary packaging is the biggest depreciator for 2017 purchase cost is factored into our a popular solution. would buy you 19 of the winning value equation. Mark Chapman, sub-light cars illustrates how the director of tax com- figures tend to take care of them- Real cost munications at H&R selves at the top end of town. It’s relatively easy to put a number Block, says the typical on the three-year cost of deprecia- way to salary pack- Depreciation tion, fuel and insurance, so the total age a car is by way of The biggest cost of ownership of these running costs equates to a novated lease. This for most new cars. Of the 2787 80% of a car’s score. allows an employee cars number-crunched, Glass’s to buy a new or used three-year retained value figures Service car and have their ran from 29% for the Great Wall Service is scored based on frequen- employer take care of V240 ute to 73% for the Audi cy. A longer interval may result in the lease repayments. TT-RS and Porsche 911 Carrera less expense – and it will certainly The employer and GTS. mean less hassle – so takes the makes repayments to maximum 10 points. the leasing company Fuel out of the employee’s Annual fuel cost calculated based Warranty pre-tax salary, which on ADR (Australian Design Rules) A seven-year warranty gives great- reduces the employ- combined-cycle consumption er peace of mind compared with a ee’s taxable income. figures. These aren’t real-world three-year warranty. However, it’s “Unfortunately, representative but they let us impossible to put a hard cost on such arrangements compare cars. Annual distance what the extra cover is worth – it also give rise to a travelled is taken as the Australian only translates into an actual cost car benefit under Bureau of Statistics average of saving if something fails and it’s the fringe benefits 13,716km (for the 12 months end- fixed without charge. Warranty tax (FBT) rules and ed June 30, 2016) and fuel prices accounts for 10 points of 100. employers typically on the day were used. look to pass some Total score or all of this cost on Insurance The addition of the real-cost score to employees,” says Annual comprehensive insur- out of 80 and the warranty and ser- Chapman. “As the ance estimates are provided by vice interval scores out of 10 gives current FBT rate is Budget Direct Insurance for a a total of 100. It’s displayed in each 47% there may be 35-year-old male living in Chat- table and, because each car refer- little benefit in sal- swood, NSW. Rating 1 for life, ences the cheapest overall model, ary packaging a car clear driving history, no finance, the difference in value through the unless you pay tax at private use and vehicle garaged classes is clear in the spread of the highest rate. at night. Estimates include a 15% scores from more than 90 to just However, you can online discount. over 40 in our choices. usually make post-tax contributions to your employer towards the Assumptions and T&Cs: Annual comprehensive insurance estimate provided by Budget Direct Insurance for a 35-year-old male living in Chatswood, NSW, rating 1 for life, clear driving history, no finance, private running costs, which use vehicle garaged at night. In order to purchase insurance you will need to obtain a premium quote and answer underwriting questions. Estimate includes 15% online discount. Insurance is arranged by Auto & General Services Pty Ltd AFSL 241 411, 13/9 Sherwood Rd, Toowong, Qld 4066 trading as Budget Direct on behalf of Auto & General Insurance Company AFSL 285571. Because we don’t know your financial reduces the FBT. needs, we can’t advise if this insurance will suit you. You should consider your needs and read the Financial Services Guide and the relevant Product Disclosure Statement available at www.budgetdirect.com.au/ car-insurance before making a decision to buy insurance. Insurance not available in NT. MY MONEY GOLD STAR CARS

If funds are tight or you’ve just graduated from your P-plates and INSURANCE: don’t want to foot a huge insurance bill, these are the first cars that FOUR THINGS YOU SHOULD ought to be on your shortlist KNOW

YOUNG COUPLES/SINGLES Find out what your 1policy includes at Kia Picanto S no extra cost. Exam- WINNER The cheapest car to run in Aus- ples are free car rental tralia is the Kia Picanto S. Only for up to 14 days if grabbing a bus, an Uber or a GoGet your car is stolen, are among the less costly transport cover for personal alternatives to the baby Korean. If you’re property in the car, intent on new-car ownership and want to do and accommodation/ it at minimum cost, with a degree of driver travel expenses if appeal, then the Picanto is it. The model is you’re over 100km offered in the single ‘S’ spec and opting for from home. the five-speed manual saves you $1500 Understand upfront and a further $120 each year at 2the exclusions. the bowser. The depreciation here is about For example, if the $2500pa, which is as good as it gets for car is driven by an a new car, and the Kia kicks on with the unlicensed driver or brand’s generous seven-year warranty, a someone under the handy 12-month/15,000km service interval influence of drugs or and bargain-basement annual Budget Direct alcohol, you might not insurance premium. be covered. If you are insuring 3a new car, ask whether you get new- for-old replacement in the event of total loss. This will mean that if your car is written off 2ND 3RD in the first 12 (or 24) months, the insurer will replace it with a Mazda2 Maxx Hyundai i30 Active CRDi DCT new one including all Mazda’s well-established driver and ownership appeal The arrival of the PD series has seen the Hyundai i30 the on-road costs. are reflected in its 55% Glass’s resale figure, which sees come of age, bringing new-found style, quality and driver Understand it shed just under $8000 in the first three years. From appeal, while our analysis suggests the model’s long-held 4the difference this cracking start the mid-spec Mazda hatch – which value credentials carry into its new chapter. The stout between agreed and gets a cheeky 2kW and 2Nm boost over the entry-level 54% three-year resale reflects the model’s – and the market value. With an Neo – powers on with good economy on plain old unlead- brand’s – wide appeal and hard-earned reputation for agreed-value policy ed, a generous 12-month or 10,000km service interval reliability, and it no doubt helps real-world values that a your car is insured and cheap-as-chips annual insurance at $701. The only three-year-old i30 will have two years’ warranty left. With for a set amount. misstep is in the warranty stakes. Three years might be a sharp $26,000 price tag for an Active-spec turbo-die- With a market-value OK now but it’ll start seeming ordinary as five-year war- sel with a seven-speed dual-clutch box, the i30 is off to policy the value is ranties become the norm. If there was a judge’s pick for a flying start. At 4.7L/100km it’s miserly at the bowser determined by what it the car in which value and fun squarely align, the Mazda2 and the five-year unlimited kilometre warranty and would cost to buy the Maxx manual hatch would be it. Ideally, as CarShowroom 12-month/15,000km service interval put it ahead of most same make and model suggests, with a safety pack fitted. of its rivals in the small car category. in similar condition.

YOUNG SINGLES ECONOMY FUEL COST/ GLASS’S THREE-YEAR SERVICE INT. INSURANCE THREE-YEAR WARRANTY GOLD STAR PRICE & COUPLES (1/100KM) YEAR RESALE DEPRECIATION (MONTHS) ESTIMATE1 O’SHIP COSTS (YEARS) SCORE/100 KIA PICANTO S $14,190 5.0 $747.52 46% $7662.60 12 $620 $11,765.17 7 93.3 MAZDA2 MAXX $17,690 5.2 $777.42 55% $7960.50 12 $701 $12,395.77 3 83.6 HYUNDAI i30 ACTIVE $25,950 4.7 $808.39 54% $11,937.00 12 $772 $16,678.18 5 67.4 1In order to purchase insurance you will need to obtain a premium quote and answer underwriting questions. See page 41 for assumptions and T&Cs.

42 MONEY OCTOBER 2017 In association with MAKE YOUR FAMILY CAR PAY Mitsubishi ITS WAY WINNER Outlander LS Entry-level, seven-seater medium ou can ease the SUVs such as the Nissan X-Trail, Yfinancial burden Holden Captiva 7 and Mitsubishi Out- by turning your car lander LS made pricier large seven-seaters into a money spinner. work hard to earn a place on the podium, Consider joining a and the latter carried its circa-$10,000 price ride-sharing service advantage all the way to the top. such as Uber. Com- Priced at just over $30,000, the Outlander parison site Finder has a reasonable 48% three-year resale says drivers earn forecast. Among rivals in this class, the an average of $35- Hyundai Santa Fe can match the Mitsubishi’s $40 an hour (before five-year warranty, and the Kia Sorento can Uber’s 25% cut). trump it, and the new Honda CR-V seven- Your car needs to be seater can go close to the 6.6L/100km less than 10 years combined cycle economy, but no model can old, have air-con and match the broad cash-saving credentials four doors, and be in offered by the Outlander. great shape. Or become an Airtasker and deliver Lookingforspace,qualityandrunningcoststhatwon’tpulltootight parcels or, if you have a van, move on the family purse strings? Here are three very different vehicles furniture. Airtasker that all deliver a convincing return on investment says it’s possible to earn up to $5000 a month. If you’d rather let the vehicle do the hard yards, rent it out through sites like Car Next Door, and pock- 3RD et $25-$40 a day, or 2ND up to $100 daily for vans, utes and premi- Kia Sportage GT-Line Holden Commodore Evoke 180 um cars. According Another entry for Kia, helped into the top three by the For our local Lion, going out at the top of its game beats to Car Next Door, it’s impressive seven-year warranty. We can see the benefit fading into obscurity hands down. Not only is the VFII a possible to earn up to of spending up on a high-end medium SUV. The typical superbly fine-tuned version of a locally developed legend $7000 a year. owner spends plenty of time ferrying the kids around that’s been around for more than a decade, it still stacks If your car is a so they might as well enjoy it, and in kitted-out form up as great value. The entry-level Evoke V6 starts by head-turner (for the these mid-size, high-rise wagons are a nice place to be. being a bit less costly than its podium mates, backing that right reasons) you More importantly, the upper versions get all the safety with slightly better resale. Predicting the actual future can register it with fruit, such as autonomous emergency braking. The Kia’s values of the last Aussie-built, rear-drive Commodores is a casting agency. $45,990 sticker is typical and its 53% three-year resale potentially tricky. Will used values slump when the new It’s possible to earn about average. The standout performances, meanwhile, model arrives? We think so. But will they rise again long $1000 or more a day include that brand’s generous warranty, the pleasingly term? Ditto, though perhaps more for a mint SS-V than a if it is selected for an low $783 annual Budget Direct insurance and the handy base car. Meantime, the big Holden’s strengths lie in low- advertisement, film 12-month service interval. The diesel isn’t the most eco- cost insurance, reasonable annual fuel cost and an odd or television. nomical in its class but 6.8L/100km is decent enough. nine-month service interval.

ECONOMY FUEL COST/ GLASS’S THREE-YEAR SERVICE INT. INSURANCE THREE-YEAR WARRANTY GOLD STAR FAMILY PRICE (1/100KM) YEAR RESALE (%) DEPRECIATION (MONTHS) ESTIMATE1 O’SHIP COSTS (YEARS) SCORE/100 MITSUBISHI OUTLANDER $30,500 6.6 $986.73 48% $15,860.00 12 $821 $21,283.19 5 55.4 KIA SPORTAGE $45,990 6.8 $1169.59 53% $21,615.30 12 $783 $27,473.07 7 48.5 HOLDEN COMMODORE $35,490 8.3 $1240.89 36% $22,713.60 9 $787 $28,797.26 3 40.0 1In order to purchase insurance you will need to obtain a premium quote and answer underwriting questions. See page 41 for assumptions and T&Cs.

In association with MONEY OCTOBER 2017 43 MY MONEY GOLD CARS

Shopping at the upper end of the market can easily trip up even the FINANCING most financially savvy. Here are three badges with clout that deliver THE DEAL champagne motoring on the proverbial beer budget ars depreciate Crapidly so it PREMIUM makes sense to Audi A1 Sportback minimise finance 1.0 TFSI charges. But paying WINNER Just as downsizers stepping from in cash won’t always big, early century homes in the score you a discount. suburbs are choosing flash inner- Car retailers ring apartments and townhouses, those worked out long ago stepping from medium and large cars are that they can make opting for designer babies such as the Audi more money by A1 Sportback rather than pedestrian small offering finance. But hatches. Around $30,000 on-road might if you don’t have the seem a lot for an entry-level light car but folding stuff, head to feel the quality and absorb the inherent lenders like Heritage value. With a sweet, 1.0-litre turbo triple, Bank (5.14%) or First Ingolstadt’s smallest model uses just Option Credit Union 4.2L/100km, which makes it the least costly (4.99%) for wafer- to fuel of any 2017 Gold Star car. The insur- thin rates on person- ance is reasonable for a premium machine, al loans secured by at $776, and the 12-month service interval a term deposit. will save hassle as well as a few bucks. When it comes to traditional car loans, credit unions, build- ing societies and cus- tomer-owned banks are highly compet- itive. Check out the likes of IMB (5.99%) and BCU (5.90%) 2ND plus non-bank lend- ers like carloans. 3RD com.au (5.44%). BMW 318i Sport Line Mercedes-Benz E200 Dealer finance can We don’t generally associate 1.5-litre, three-cylinder The battle for premium large honours in the Wheels seem like an easy engines with the BMW 3 Series sedan, but the downsized Gold Star awards proved an old-fashioned fight between option. However, the turbocharged engine is, in this case, Munich’s ace in the Germany’s big three, with Mercedes-Benz ultimately best deals (we’re hole. The zesty little powerplant is borrowed from the presenting a sharper proposition than BMW or Audi. The talking near-zero Mini range but some tradition clearly persists, as in this entry-level Benz E200 started on the right foot with a interest rates) tend case it drives the rear wheels. The numbers stack up con- lower purchase price and a slightly stronger resale than to be reserved for vincingly, with a 5.4L/100km fuel economy performance the BMW 520d, to shed about $1000 less of its value in self-employed bor- and Budget Direct insurance pegged at a reasonable $981 each of the initial years. The total cost each year? Erm … rowers with an ABN. a year. It has a 56% three-year resale forecast. Like most about $15,500. Ouch. But that’s big luxo cars. The E200’s Don’t overlook of its premium rivals, the 318i is sold with a three-year, 135kW, 6.5L/100km 2.0-litre turbo petrol sees it strike a your home loan as unlimited kilometre warranty. After the initial 12-month happy middle ground of driver appeal and economy. Con- a source of finance. service, servicing is condition-based, with the car’s dition-based servicing, meanwhile, could let the Merc go If you’re ahead with onboard diagnostics deciding when it needs a freshening two years between check-ups but that would depend on repayments, redraw at the shop. All in, it’s a class act. the sort of driving you do. may be an option.

ECONOMY FUEL COST/ GLASS’S THREE-YEAR SERVICE INT. INSURANCE THREE-YEAR WARRANTY GOLD STAR PREMIUM PRICE (1/100KM) YEAR RESALE (%) DEPRECIATION (MONTHS) ESTIMATE1 O’SHIP COSTS (YEARS) SCORE/100 AUDI A1 $27,300 4.2 $744.86 55% $12,285.00 12 $776 $16,847.58 3 64.0 BMW 318i $54,900 5.4 $957.68 56% $24,156.00 12 $981 $29,972.04 3 40.0 MERCEDES-BENZ E200 $91,100 6.5 $1152.76 49% $46,461.00 24 $1343 $53,948.28 3 31.4 1In order to purchase insurance you will need to obtain a premium quote and answer underwriting questions. See page 41 for assumptions and T&Cs.

44 MONEY OCTOBER 2017 In association with

MY MONEY EXTRA INCOME

Set up aside hustle STORY ou need a side hustle. In this day and spare time, and once it was out he refined it for a while CHRIS age, it’s not just nice, it’s necessary. Even before walking away to pursue other projects, leaving GUILLEBEAU ifyouloveyourjobandhavenoplans it to produce income on autopilot. toquit,asecond–orthird–income Curiosityisavaluableskillforsidehustlers,andit’s canbringyousecurityandabackup a skill that can be developed. As you go through your With this Yplan. Oh, and it can also be fun … because a side hustle day, look for problems and think about what kind of should be something you look forward to spending time solution someone could create for those problems. Then four-step on,notsomethingthat’sachore. think about how to turn that solution into a product or strategy WhenIusethephrase“sidehustle”,Idon’tmean service that people can pay for. a part-time job that drains your energy after you’re you can alreadytiredfromyourdayjob.Imeananassetyou STEP 2 turn a bright create that has the potential to produce passive income. Prepare to launch Here’s an example. For the past seven years, Mike Makealonglistofeverythingyouneedtogetgoing. idea into a BenkovitchinSydneyhasearnedanaverageof$800a Muchofthetimeyou’llneedawebsite.Awebsitedoesn’t month from a project he made long ago and has hardly need to be fancy or expensive; plug-and-play platforms profitable updatedsince.Thisisanaudiosystemthathelpsmedical like WordPress and Squarespace will do just fine. You business students memorise the human anatomy. When they canregisteradomainandsetupabasiclandingpage purchase Mike’s course, the students learn faster and in an afternoon. getbettergrades.Meanwhile,Mikegetspaidmonth Beyondthebasics,you’llneedtocreatespecificdeliv- after month. erables for your hustle: a scheduling calendar for coaches Howcanyoucreateasuccess story of your own? It or consultants, a payment system for ecommerce sites, allstartswithanidea. anemaillistwhereinterestedsitevisitorscansignup tolearnmore,andsoon.Bygettingspecificonexactly STEP 1 which tools you’ll need, you won’t waste time trying to Find an idea install every app or fancy feature. Ideas for viable side hustles come through the power of observation. Mike knew that there were a lot of STEP 3 medical students, and that memorising anatomy was Launch your idea particularly complex. His side hustle was an experiment An idea on its own doesn’t have much value. To actually that took off – it took a few months to create it in his make money you’ll need to transform your idea into an

46 MONEY OCTOBER 2017 offer.Anofferincludesthreeelements:apromise,apitch that. If it’s not, go back to step one and choose another andaprice.What,exactly,areyouselling?Whyshould idea.Byreducingrisk(notinvestingalotofmoneyand people purchase or pay for it? Then, when they’re ready starting quickly), your costs of failure are low. to do so, how will they do so? You need a side hustle and there’s never been a better Nextyouneedtogetthewordout.“Ifyoubuildit, time to start one. The costs are low. The rewards are theywillcome”isapipedream.Youhavetoletthem high. It’s like a hobby, except that instead of draining know!Makealistoffivepeoplewhowillhelpyougetthe your wallet, this hobby makes deposits in your bank word out. Ask them for specific help, whether through account. What are you waiting for? M sharing a post on Facebook or connecting you with a popularbloggerwhoacceptsguestposts. You need Don’tspendmuchmoneybutconsiderinvestingasmall amountinFacebookadstoseehowstrangersperceive to get the Win a copy your new offer. Feedback from potential customers is more valuable than advice from friends. word out. hris Guillebeau is the Cbestselling author of The STEP 4 $100 Startup, The Happiness Regroup and refine “If you build of Pursuit and other books. Onlywhenyoulaunchyourofferintotheworldwill His latest book, Side Hustle, youtrulyknowhowpeoplewillrespondtoit.Youcan’t it,theywill presentsthe27-dayplanin justaskthemaboutitinadvance,becausetheywon’t more detail. He also hosts always give accurate answers. come”isa the Side Hustle School Mostnewsidehustlersthinkthatoneoftwothings podcast, where every day he shares a story of happenwhenyoulaunchanidea:it’seitherahuge adifferentpersonwhostartsanincome-generat- successoramiserablefailure.Butmuchofthetimethe pipedream ing project without quitting their day job. For your initialoutcomefallssomewhereinthemiddle:youridea chance to win one of six copies of Side Hustle tell works,sortof.Itdoesn’tcompletelyflopbutyou’realso usin25wordsorlesswhatsidehustleyou’dstart. notgoingtoretiretothebeachanytimesoon. Send your entries to [email protected] That’sOK.Noplansurvivescontactwiththebattlefield. orMoneymagazine,GPOBox4088,Sydney, NSW Onceyourofferisout,paycloseattentiontoseewhat 2001. Entries close November 1, 2017. needs to be tweaked. If it’s working, great; do more of

MONEY OCTOBER 2017 47 MY MONEY REALITY CHECK Urban myths busted

Factscanruinagood story but they are essential for making good business and economic decisions

STORY PHIL RUTHVEN

merican corporates on the New York indeed, twice the gross domestic product (GDP) share stockexchangehavebeentheworld’s of the world’s most developed nations. Evidenced-based most profitable, on a weighted-average decisionsbeatguessworkandgutfeel. basis, in the post-industrial age over Factsusuallyruingoodstories,atworkandinour the past half century. The average social life. But rumours, scuttlebutt, scandals and old AAmericancompany’sprofitabilityhasbeenfourtimes wives’ tales can be very believable, and we tend to the long-term bond rate, which continued through the believe a lot of them until they are debunked. After all, GFCandbeyond.Incontrast,Australiancompanies’ theyareinteresting,entertainingandoftencomforting. average profitability on the ASX has only been twice Butwhenleadingabusinessorgoverninganation,it the 10-year bond rate, apart from during the recent is safer to make evidence-based decisions, which leads short-lived mining boom. (See chart 1.) toanumberofmythsthatshouldbegivenoverdue Oneofthereasonsforthisdiscrepancy,perhapsthe rebuttal.Sowhataresomeofthesesurvivingornew most important, has been that American corporates myths, beginning with several that are social urban spend more on information than any other nation – myths rather than business-related fallacies?

48 MONEY OCTOBER 2017 Marriages don’t last as long enough workers to support the population, we needed 1as they used to children to start work at under 15 years of age, often Not true. The average length of a marriage has stayed as young as 11 to 13. As this century unfolds, working around 20 years for three centuries. That there are beyond 65 and up to 75 or more – often on a part-time or more divorces and separations these days is due to the casual basis – is realistic for a workforce that emphasises fact that we live over twice as long as people did in the brains, not brawn. And the only way to wear the brain early 1800s (when the average lifespan was 38 years) out is to stop using it. and have time for a trade-in, if you have a mind to. In the olden days, you married at 18, lived another 20 years There won’t be enough jobs together and then went to God before you were 40, on 8due to technology, robots and average. There just wasn’t enough time for a divorce. artificial intelligence Yes, there will be. We are good at creating jobs. Over the Crime is on the rise, past five years we have created eight times more jobs 2especially murders No, it isn’t. Not only is the murder rate in Australia one 1. AUSTRALIA’S CORPORATE PROFITABILITY TO 2015 of the world’s lowest, at under two per 100,000 each year, it has fallen to record lows over the past five years. Return on shareholders funds (after tax) 30% Despite the fall in ROSF, the Top 30 still averaged Speeding is the No. 1 cause four times the bond rate 3of road-based deaths 25% No, things like distractions, falling asleep and intoxication Largest 30 are. Speed is usually somewhere around the second to listed - US fourth most common cause. 20% We need a big population 4to compete in a globalising 15% Resources world price boom No, we don’t. Some 18 of the world’s top 20 countries 10% with the highest standard of living have a population lower than Australia’s 24 million, and most are less than Largest 30 listed a third of our population. Only the US and Germany 5% - Australian are more populous countries in the top 20. 0% Australia’s population is 93 95 97 99 01 03 05 07 09 11 13 15 5getting to the limit of our Source: IBISWorld 2016 carrying capacity That’s good for a laugh right around the world, especially 2. AUSTRALIA’S NEW AND LOST JOBS in high-density Asia. Our population is so thin we could By industry, five years to June 2016, share of total basis Net only just touch hand to hand around the coastline. new jobs Indonesia’s population, on a fraction of our land, could Personal & other services Agriculture 1.5% 830,000 do so 11 deep and China, with only a slightly bigger land 3.6% Mining 8.1% Australia created mass than us, could be 52 deep. On our present growth Arts & recreation 8 times more new rate, we will have a population of over 40 million in 1.4% Construction 6.5% jobs than 2050 and over 75 million by 2100, and still have one of Retail 5.0% it lost the world’s lowest population densities. Transport 5.4% Health Info media & telcos Finance & 5.4% Immigrants take our jobs 30.2% New jobs No, they don’t. They more often take jobs we don’t insurance 6 942,200 1.3% like. And if a migrant family arrives, they create demand Wholesale Rental & 44.4% Lost for more jobs than they can fill for at least five years, real estate 1.6% jobs in terms of the necessary infrastructure and annual 112,200 consumption expenditure. Prof & tech Utilities Hospitality services 13.4% 7.1% 2.5% Admin & support 1.7% Australia will run out of Manufacturing 7workers due to ageing Education 7.9% Govt & safety 5.3% 47.7% No, we won’t. Being too young a population, as we were in the 19th century, was a worse problem; and to get Source: ABS, IBISWorld 2016

MONEY OCTOBER 2017 49 MY MONEY REALITY CHECK

than we have lost. Yes, eight times! There are millions of jobs in the making to replace those lost through technology and digital disruption, to be added to our The claim that we are too highly taxed current 12 million jobs. (See chart 2.) We are now working harder is one of the most pernicious lies being 9and with not enough time to scratch ourselves trundled out by both sides of politics Not true. For males in the year 1800, it used to be a 65-hour week for 25 years, starting at 13 years of age to complete 80,000 hours of paid work, only to die at an 3. WORK AND LEISURE OVER TIME average age of 38. Now it is still 80,000 work hours in a lifetime but at a pace of less than half those hours per Life expectancy (thousands of hours) week for longer (more than 50 years). Remember we now 1000 Leisure time have two months off a year through vacations, public 900 Education holidays and sick leave. We have more discretionary and Sleep leisure time than at any time in history. (See chart 3.) 800 Unpaid work Housing is now 700 Travel to work 46% Paid work 10 dangerously unaffordable 600 44% It always was unaffordable for the newlyweds and the 43% 500 poor, so what’s new? Interestingly, the debt servicing ratio (interest payments as a share of disposable income) 32% 400 29% for mortgage and other debt is currently at the lowest 27% rate in four decades. (See chart 4.) 300 23% 200 The rich are getting richer 100 11 and the poor getting poorer No, they aren’t; there has been hardly any change since 24% 20% 9% 0 22% 16% 12% 10% the beginning of our new century here in Australia. 1788 1838 1888 1938 1988 2038 2088 Source: IBISWorld 2016 Year born We are too highly taxed 12 No, we aren’t. This is one of the most pernicious 4. HOUSEHOLD DEBT SERVICING RATIO lies being trundled out by both sides of politics in Australia: blatant scaremongering and politicking. Percent of household disposable income, to F2016 (year end June) We are actually one of the lowest-taxed developed 16% nations at 28% of GDP. The average among developed Other (loans, credit card debt) countries is around 37% and many nations are nudging Mortgage 14% 50% of GDP. 12% The greatest mining boom in our history is now over 10% 13 Firstly, it isn’t our greatest boom: that was in the 1850s, when the industry reached almost 18% of our GDP – led 8% by gold – versus the current one at just over half that share. And the boom isn’t over; production volumes 6% are still growing and may do so well into the 2020s but 4% boom prices are over. (See chart 5.)

2% We need to cut costs 14 to balance the budget 0% Yes, let’s regress back to the days when there was no or 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 inadequate support for single mums, the unemployed, Source: ABS, IBISWorld 2016 the elderly, the disabled or other disadvantaged citizens.

50 MONEY OCTOBER 2017 Let’snotstoptillwegetbacktothe“goodolddays” 5. MINING INDUSTRY LIFECYCLE whentaxesweremuchlowerandmaythedeviltake the hindmost in terms of the people left behind. I don’t Value added share of GDP (current price basis) thinkso.But,yes,weshouldgetbettervalueforour 20% taxesthanwedo.OnefifthofourGDPisproducedby 2nd Cycle Gold By the end/bottom of the 6th 18% cycle around the mid 2040s or governments,andthatsector’s productivity has been earlier, 80% of industry output negative for decades. 16% is expected to be energy 14% minerals (LNG, coal seam gas, We need to make material oil, uranium and coal) things to create basic 12% 3rd Cycle 15 Gold & Coal 6th Cycle wealth 10% Energy + No,wedon’t.Awealth-creatingindustryisonethat produces products that customers and the market want 8% 5th Cycle and are prepared to pay for, regardless of whether these 4th Cycle Energy, Iron 6% Gold Ore & Gold products are goods or services. Agriculture, mining, 1st Cycle manufacturingandconstructionareallserviceindus- 4% Quarrying triesanyway.Humansdidn’tcreatetherawmaterials & Coal on which they are based; God did and they are free. No 2% onehaseverbeengametotakethecreditforcreating 0% ournaturalresources,leastofalleconomistsandour 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 2040 2060 Bureau of Statistics. The term “goods industry” is an Source: ABS, IBISWorld 2016 historical construct to separate tangible from intan- gible products. 6. AUSTRALIA’S AGES OF ECONOMIC PROGRESS Theeconomyanditswealthisbuiltonvalueadding, so wealth creation has only ever been the result of labour, GDP at F2016 constant prices, 1788-2016 onwards $2000bn depreciationofcapital,indirecttaxesandprofitgoing Hunting Agrarian Industrial age Infotronics age Enlightenment into a product, not the God-given free raw materials. $1800bn age age age? Agriculturethesedayscreatesjust2%ofourGDP, Quaternary service and manufacturing less than 6%. In 1960 these two $1600bn industries Quinary Hunting Agriculture Manufacturing service industries were 38%, not 8%! Yet we have a standard $1400bn Trapping Mining Construction ICT industries oflivingnearlythreetimeshigherthanattheendof Fishing Banking (30-50%+ of GDP) Digital theindustrialageinthemid-1960s.Ifanything,itisour $1200bn Crafts Commerce Era Religion (post- Imbedded “service”industriesproppingupsome of the “goods” $1000bn 2007) intelligence industries in this new century. The major The major utilities Neural network $800bn utility is are electricity programs Nuclearistheworld’s transport and telephony Electronic $600bn “guardian 16 most dangerous energy angels” ever used $400bn Other new Wood probably kills more people per kW of energy technologies $200bn produced (logging, chopping, asphyxiation, fire). Nucle- ar energy almost certainly has been the safest energy $0bn source on the basis of deaths per kW of energy. 1800 1840 1880 1920 1960 2000 2040 2080 Source: IBISWorld 2016 Australia could become 17 thefoodbowlofAsia Win a copy If only ... but we don’t have enough water. That said, we will probably increase our output fivefold this cen- PhilRuthvenisthefounderofIBISWorld,aninternational tury as we did in the 20th century but that will only corporation providing online business information, forecasting andstrategicservices.ThisisanextractfromhisbookFast- be enough to feed 5% of Asia’s population at the end of Changing World (Wilkinson Publishing, RRP $44.99). We hav the21stcentury. 10 copies to give away. For your chance to win tell us in 25 word or less a money myth you have busted. Send your entries to But despite these myths, are things really getting [email protected] or Money magazine, GPO Box better? You bet. Just look at our progress in chart 6. 4088, Sydney, NSW 2001. Entries close November 1, 2017. And the best is yet to come. M

MONEY OCTOBER 2017 51 MY MONEY HEALTH CARE

Narrow the gap

STORY BETH QUINLIVAN

oranyonewhohasahospitalstaylooming claimonobstetrics,forexample,unlessitisspecifically Greater on the horizon and who is also watching covered by your policy. Also like other insurers, Med- transparency theirhealthcarecosts,arecentseriesof ibankcoversdoctors’feesifthedoctorsparticipatein reports by health insurer Medibank Pri- their “no gap” or “known gap” contracts. If the doctor’s is the key vate and the Royal Australasian College fees are more than the amount the fund has agreed to Fof Surgeons (RACS) makes for interesting reading. reimburse,thenthe“feegap”ispaidbypatients. to reducing Australia has standards of healthcare that are among On some procedures detailed, most patients escaped out-of-pocket thebestintheworldbutwhattheMedibank/RACS out-of-pocket expenses. With colonoscopies, for exam- expenses in a reportsshowisthatindividualsarepayingdearlyfor ple, patients paid an out-of-pocket fee to the medical thatcareandthathealthisnowamajorbudgetitem. specialistin9%ofcases(averaging$272). complex and Usingdatafromthepasttwoyears,thereports Butthatwaslowcomparedwithothercommonsur- detailcostsandout-of-pocketexpenses–aswellas gery. People having a hip replacement paid out-of-pocket costly health other information on complication rates – for common expenses to the surgeon in 42% of cases, and in 77% of system surgical procedures. instancesfortheanaesthetist,fordiagnosticsandforan Medibank, like other insurers, reimburses medical assistant surgeon. Out-of-pocket expenses varied across expenses according to the details of the policy – you can’t states – they were charged in 95% of procedures in the

52 MONEY OCTOBER 2017 ACT,79%inNSW,withlowerratesinTasmaniaand TheConsumersHealthForumsuggestsalsoaskingthe SouthAustralia.Theactuallevelofout-of-pocketfees GP to provide two or three specialists’ names, and check wascertainlynottrivial:upto$5000forthesurgeon what each charges and how much would be covered by andupto$2500forothermedicalservices. your health insurance policy. The challenge for households, considering these “Whenyou’vebeenreferredtoaspecialistforpotential significantfeesontopoftheirhealthinsurancepre- hospital treatment, I’d recommend that patients plan miums, is what to do. aheadwithalistofquestionstotakeintoaspecialist Healthcostshaveforyearsbeenrisingatagreater consultation,” says Linda Swan, the chief medical rate than inflation, partly driven by technological officerforMedibank.“Beingtolddifficultordistress- advances and the raft of new treatments now part of ingnewscanoftenleadtopeopleforgettingwhatthey normal medical care. Australians already pay more out wanted to ask. oftheirownpocketforhealththanmostcountriesinthe “Ifyou’reunsureaboutarecommendedtreatment world. Of the OECD countries, only Ireland, Switzerland or fee, ask for a second opinion,” she says. “You can and US pay more for health out of their own pocket. callyourinsurerandaskforsomeadvice–whatyou’re But health is different from other spending. People covered for and what you’re not, and whether there whoareveryeffectiveatmanagingotherareasoftheir are other surgeons in your area who participate in budgethavebeenhesitantaboutevendiscussinghealth gap-cover schemes.” costs.Healthcanbehighlyemotional;decisionsabout Increasingly GPs are being asked to advise on spe- treatmentssometimeshavetobemadequicklyandat cialist fees alongside the health plan. difficulttimes.Australia’shealthsystemisacomplicated Bastian Seidel, president of the Royal Australian mixofpublicandprivate,layeredwithtaxrebates,tax College of General Practitioners, says making patients penalties, safety nets and more. Information is confusing aware of potential out-of-pocket expenses is important andinmanycasesnoteasilyavailable. and many GPs routinely do this now. PATIENT Socanconsumers,withoutimpactingonthequalityof Putting the onus on patients to do their own research, CHECKLIST care they receive, better manage their health spending at potentially difficult times, is also not the answer, he and minimise out-of-pocket fees? says. “A patient diagnosed with prostate cancer should Patients should ThefirstpointtomakeisthatasidefromtheDrGoogle not have to be making these decisions. They should be always ask their instant experts, the vast majority of people acknowl- abletohaveaGPtoadvisethem.” doctor about fees, edge that their doctors and other health professionals And that would be easier if fees were publicly disclosed. and the fees of other aretheoneswhohavetheexpertiseandaretherefore “IfyouseeyourGP,thefeesarepublicandabsolutely doctors involved in best placed to advise on health matters. clear,” says Seidel. “It is very difficult for patients and their care, before Butthereisstillarolethatconsumerscanplayto GPs if specialists’ fees are not open and transparent. going to hospital as a getbettervalueoutoftheir health spending and keep Ican’tseeanyreasonwhytheAustralianMedical private patient. This alidontheircosts. Association and all the colleges wouldn’t publish a includes asking: standard procedure fee. Develop a good long-term • What are your Getthefacts,askquestions relationship with a GP, and it is in their interests that fees? Themajorchallengeintryingtounderstandandman- referrals are optimal.” • Are there any fees agecostsisinformation.Differentdoctors,hospitals for other doctors? andhealthfundsallhavetheirownlevelsofcosts Public and private options • WillIhaveany andreimbursements,andpeopleneedtofindthatout Almost50%ofAustralianshaveprivatehealthinsurance out-of-pocket costs? themselves.Thereisnosinglesourceofclear,compre- but that does not mean that it is in your best financial • Is your fee an hensive information. interests to use your private insurance for all your estimate only? That,saysLeanneWells,chiefexecutiveofficerofthe healthcare.Ifyouareadmittedtoapublichospital,for • CanIhavean ConsumersHealthForum,iscompletelyunacceptable example in a medical emergency, you will typically be estimateofyourfees giventheverylargecostsofhealthinsuranceandout- asked if you have private insurance and, if so, encouraged in writing? of-pocket costs for many private medical services. She to use it. This allows the hospital to claim reimbursement • If the cost chang- believes there should be an independent, authoritative from the health fund, and obviously that is helpful to es, when will you let websitewherepeoplecaneasilycheckandcomparecosts. hospitalbudgets(whicharealwaystight). me know? Intheabsenceofeasilyaccessibleinformation,she But whether this is in your financial interests or not • WhatifIneeda says people should be prepared to take time to assess depends on whether everything you will be treated for prosthesis? needs and healthcare costs, particularly if you have a is covered in your policy, and whether you will be left • Should I contact chronic illness. with out-of-pocket gap charges. my health fund? Forprivatemedicalservices,askforwrittencost In many areas of Australia, especially rural, you Source: Australian Medical estimates not just from the doctor/specialist but for won’thavemuchinthewayofchoice–thereisonlya Association associated costs including anaesthetics and diagnostics. public hospital. In which case there may still be value

MONEY OCTOBER 2017 53 MY MONEY HEALTH CARE

in having private insurance because it can provide have in writing the health cover you have decided on WHERE TO choiceofdoctor(assumingthereismorethanone)and andwhereitmaydifferfromdefault policies.” potentiallyfasteraccesstotreatment.Butmaybenot. GET HELP In many public hospitals, public and private patients Costs and quality share rooms and have the same doctors. TheMedibank/RACSreportsdetailedthecostvariations • healthdirect. Consumer Health Forum’s Wells recommends that, forproceduresacrossstatesandacrosstheprofession. gov.au provides where feasible, people should check what specialist HealthinsurerNIBofferssimilardataonfeesfor comprehensive services they need in advance of use. prostatectomy.In2016about50%ofspecialistswere information on local “Asanexample,manypeoplepayoutthousandsof performing the surgery and charging less than $3000, health services, dollarsforprivateobstetricchargeswhenpublichospital whichwaswithinNIB’sgapcovercontract,sothere including free services. andsupportservicesarecomparabletowhatisavailable were no out-of-pocket expenses. But 25% of doctors’ fees privately. For other elective procedures which may have wereupwardsof$9500fortheprocedure–obviously • privatehealth. lowerdegreesofurgency,suchasjointreplacementand leaving hefty out-of-pocket costs. gov.au has a cataracts, check what services and waiting times apply Thequestionis:whatdoyougetforthatextramoney comprehensive guide inlocalpublichospitals.Evenifyoualreadyhaveprivate and do surgeons who charge high fees deliver better to private health insurance, private gap costs may mean public hospital outcomes? insurance funds. care would save you considerable sums.” “Thereisabsolutelynoevidenceanywhereinthe world that higher charges translate to better outcomes,” • whitecoat. Review your policy says Mark Fitzgibbon, chief executive of NIB. com.au,setupby Health insurers face ongoing criticism about the com- While he says there is enormous difference in prostate three of the major plexities and cost of their policies, and there is never surgery outcomes between the good and not-so-good health insurers, has ashortageofreportsofpeoplewhopaypremiumsfor doctors–intermsofmedicalcomplicationssuchas adirectoryofallied yearsonlytodiscoverthefirsttimetheyneedhospital urinary incontinence and impotence – that data is not healthservicesand care that their policy doesn’t provide adequate cover. collectedandpublishedinawaythatwouldbeusefulfor some doctors but The consumer group Choice in July urged the gov- people and their GPs when making specialist choices. is aiming within the ernmenttosimplifyhealthinsuranceafterasurvey So NIB is working with other insurers to develop the next year to have foundnearlyhalfofAustraliansfoundtheprocessof Whitecoatwebsite,whichispitchedastheTripAdvisor a comprehensive finding a suitable policy difficult. ofhealth.Thewebsiteislivebutatthemomentismore database of doctors, “One of the biggest areas of difficulty for consumers is useful as a directory of allied health practitioners with including patient- uncertainties about what their private health insurance a small participation of doctors and specialists. reported outcomes mightcover,”saysWells.“Itisworthhavingaclearidea Fitzgibbon is confident that within 12 to 18 months and experiences. ofexactlywhatiscoveredandanyexcessesinvolved, Whitecoat will have patient-reported experiences and andtocheckthiseveryyear. outcomes, and generally provide information that people • surgeons.org/ “Theseissuescanbecomehighlyfraughtforpeople can use to help in choosing doctors and understanding news/surgical- who suddenly face the need for surgery and at that the financial implications of their choices. variance-reports time of anxiety learn that their insurance does not Outcomesareacurrentmajortopicofdiscussionfor for reports from cover what they thought it did. Assess thoroughly what the medical profession, and consumers seeking better Medibank/Royal type and level of health insurance you need and can value from their health spending will hopefully see Australasian College afford,usingcomparatorsites[thegovernmentsite more information provided not just by insurers but by of Surgeons. privatehealth.gov.au is recommended] and ensure you the government in future. M

Research before surgery pays off henitbecameclearlatelast sheconsultedabouttheprocedure with this surgery, and I wanted to Wyear that Lorraine Bonnet had excellent reputations. gotothebestplace.ButIalsomade wouldneedahipreplacement,she Both provided her with fee the decision which would fit in with did what she does with anything estimates. They were outside gap mylifestyle,andIalsoknewpeople new–thatis,doherresearch. coverschemeswithoneat$7000- whohadthesamesurgeonand Once armed with information plusandonejustover$5000,so they had a great outcome.” about surgery options (her prefer- Lorraine did pay significant out-of- ForLorraine,ithasalsobeen ence was anterior hip replacement), pocket expenses. agoodoutcome.Shewasatthe as well as input from her GP and “It was a toss-up between the Byron Bay Bluesfest within two other doctors along the way, she two, and the difference in fees monthsandisabletoliveanormal feltcomfortablemakingdecisions. wasn’treallyafactor,”shesays. active life. “I can do everything I did The two orthopaedic surgeons “There were some complications before – except run!”

54 MONEY OCTOBER 2017 Effie Zahos BANKING

Cards with all the trimmings Christmas is coming ... and special debt deals are up for grabs

pecial credit card deals – everything from cashbacks, fee waivers and WHAT’S AVAILABLE S bonus points to discounted Uber If you want a low-cost card plus time to repay rides and smartphone screen insurance – your purchases … are flooding the market. Just in time for our Get: Bankwest Breeze Mastercard: 0% for Christmas binge! 13 months, standard rate 12.99%, annual Research by comparison site RateCity fee $79. reveals there are now 54 cards on the mar- If you want a card that will help you repay ket trying to grab a slice of the profitable your Christmas debt in a structured way … Christmas action. Get: Westpac Low-Rate Visa: Purchase They include the American Express rate 13.49%, annual fee $59. Have up to Explorer credit card. Apply online and eight SmartPlans (repayment plan for your spend $1500 in the first three months and credit card) on your card at any one time. you’ll receive 100,000 membership rewards Large Purchase SmartPlan is available to bonus points. If discounted Uber rides help you pay off a “big-ticket” item costing appeal, then Westpac’s Altitude card offers $500 or more that you bought on your card $20 off every third Uber ride on each new in the past 30 days. Get a 1.5% discount on card (total redeemable value of $250 during purchase rate on low-rate cards (excludes the offer period which ends December 31, Westpac Lite Card). 2017). Other tempting deals include the If you want to maximise rewards points … Coles fee-free Mastercard. Sign up for this Get: American Express Platinum Edge. card and you can expect free delivery if you Purchase rate 20.74%, annual fee $195. spend on the card, plus Earn three points per $1 at major supermar- collect one flybuys point for every $2 spent. If you’re looking for deals that will kets, two points at major petrol stations With around $32 billion already owing – make the most of your spending over the and one point on standard purchases. Great an average of about $4200 per cardholder – holidays, then Canstar’s picks (see panel) for entertaining or road trips. Plus $200 we really don’t need any incentives to sign make great sense. They may not have those travel credit each membership year. up for more plastic. But, and this is a big super-quirky perks but they can appeal to but, if you can play your cards right, now is those who need a little more time to pay certainly a good time to upgrade. off their debt. And that’s the catch for most But there are some friendly cards, accord- “The average Australian spends almost cardholders with interest-free days. ing to Canstar, that calculate interest from $19,000 per card every year on plastic, While your card may offer you 45, 55 the date the statement is issued, rather than so it’s little wonder credit companies are or up to 62 days interest free, this doesn’t from when the purchase is made. offering attractive deals to bring in new mean you have up to 62, 55 or 44 days inter- To help you make your payments on customers,” says RateCity’s money editor est free on every purchase you make. The time, ensure the statement period starts a Sally Tindall. “Of course, you need to make total comes about through the monthly couple of days after your payday to allow sure you read the fine print.” billing process (generally 30 days), plus for weekends and public holidays. Some The two big traps with choosing a credit the time between the end of your monthly banks allow you to change your statement card based on trimmings alone are inter- billing period and the due date, which is period to match your pay cycle. It’s worth est rates and fees, which can be as high as generally 25 days if you have, say, a 55-day asking your issuer if it can do this. The 24.99%pa and $1200pa respectively. “Cards interest-free card. So if you make a pur- biggest trap with these types of cards is not offering bonus rewards and a raft of sweet- chase later in the monthly billing cycle, repaying the balance in full by the due date eners often have a high annual fee attached; you’ll have fewer interest-free days. or by using them for cash advances. that’s how they make their money,” says If you repay your balance in full by the Tindall. There are 31 cards on the market due date, no interest will be charged. If you Finance expert and author of The Great with no annual fee at all, so make sure you don’t pay in full, interest will be calculat- $20 Adventure, Money’s editor Effie Zahos, shop around before signing on the dotted ed from the day the purchase was made appears regularly on TV and radio. She line.” – meaning there are no interest-free days. started her career in banking.

MONEY OCTOBER 2017 55 FAMILYF MONEY Susan Hely

Hard job choosing a career At 14 or 15, it’s hard for kids to know what they want to do in their future working life

elping your high school children sort out a career path isn’t always H straightforward but it is essential for their eventual financial independence. Many kids find choosing a career over- whelming with only six in 10 knowing what they want to do, according to a new study of 14- to 15-year-olds by the Australian Institute of Family Studies (AIFS). It found kids to study but they have to accept that professions as well as design, planning and that they can have unrealistic expectations the decision is largely up to them. architecture, AIFS found that boys often about their future. This can lead them to “We’ve heard too many stories about stu- want to work in engineering or transport, drop out of university, with around one in dents who have changed courses, dropped information/communications technology three Australian university students not out because they made the wrong choices or construction. Girls rank being educa- completing their studies within six years. about what to study, students who didn’t tors, lawyers and social professionals such Teenagers need good information from realise there were other entry pathways or as counsellors among their top choices. parents, schools and career experts to help who started a course with next to no idea of Boys are much more likely than girls identify the range of jobs that suit them and what they were signing themselves up for,” to want a trade or technical job, such as a the pathway to achieve their aspirations, says Simon Birmingham, federal education mechanic or builder. Girls are more likely says Jennifer Baxter, senior research fellow and training minister. than boys to want a job in personal servic- at the AIFS. “Some may need help to mod- With university fees going up and the es, such as hairdresser or beautician. One ify their plans to suit their skills and the government planning to reduce the income in 10 boys and girls say they would like to nature of the labour market.” threshold for HELP repayments to $42,000 work in a job that involved sports or per- Most schools shine a light on careers from July 2018, it can be a costly exercise to formance arts. when students are 14 or 15. In Canber- change university courses. Run through the options with your ra, with its innovative Pathways career While you want your kids to follow children and, rather than asking them what program, it is much earlier. Kids spend what they are interested in, you also want they want to be, find out what they are time with a career adviser going through them to get a job. AIFS found that there is interested in. For example, if you ask them different options and it can be a valuable a big disconnect between what kids want if they want to train as an electrician, they exercise as it helps them identify a range of to do and what jobs are available: 60% of may find it hard to get excited. But if they suitable jobs and what they need to study 14- to 15-year-olds aspire to a professional told you they are interested in alternative to get there. or managerial job but this figure is very energy and installing solar panels and But, on the other hand, careers advisers’ high for a sector that employs only 35% of batteries, one career path would be an advice can throw up jobs that the students the population. electrician’s course. have no interest in. The study also reveals big gender dif- Parents also often get in the way of what ferences that are limiting job prospects, Susan Hely has been a senior investment their kids want to do. They might have a particularly for girls. While both boys and writer at The Sydney Morning Herald. She strong sense of what they would like their girls are attracted to medical and science wrote the best-selling Women & Money.

56 MONEY OCTOBER 2017 Anthony O’Brien SMALL BUSINESS

Keyroleofasuperfund There are advantages – and traps – in having your SMSF own your premises

wning the premises where you superannuation, and that’s an investment run your small business may risk, warns Howard. You also need to O help boost your retirement think about what will happen when the savings if you have a self-managed time arrives to hang up the work boots. super fund (SMSF). But you have to “When you decide to take an allocated get on top of the rules. pension, such as when you retire, Usually there are restrictions preventing there are cash flow issues that SMSFs from investing in assets owned by must be considered. If all your related parties, such as fellow fund mem- super is invested in a capital asset bers or relatives. These restrictions don’t such as a commercial property, and apply to “business real property”, which is held within an SMSF is you’re not getting the required rent from it, generally an interest in land or buildings concessionally taxed when you need to think about how to fund your used exclusively by one or more businesses. it is sold. “If you sell the prop- pension and loan repayments if some debt If you’re a mechanic it might be the garage erty when you’re entirely in pension mode, remains on the property,” says Howard. you work from, or if you’re a GP your sur- then the capital gains tax rate will be zero,” There are succession planning issues, gical rooms. Whether it’s a shop, office or says Heaven. too. “You can’t keep the property within surgery, your SMSF can own this asset and If your business develops credit issues or the super fund indefinitely. If your chil- lease it to your business. becomes bankrupt, premises held within dren take over the business, that asset will “Business real property is an asset that your SMSF will generally be protected. ultimately have to come out of the SMSF,” is often owned inside a self-managed super “Because the asset is owned by your super he says. Differing SMSF member ages, fund by small businesses,” says Andrew fund, it generally won’t be affected by any contrasting retirement plans of business Heaven, an AMP financial planner. “It can issues with the business,” says Howard. owners and life expectancy can create be legitimately leased back to your business additional layers of complexity that make on commercial terms and is the only asset Is it right for you? the holding of a business premises within exempt from the related party rules, in the Before using your super to buy your place an SMSF problematic, notes Howard. context of running your own super fund.” of business, weigh up how much you have in super. That said, it is possible for an Avoid white elephants Tenant and landlord SMSF to borrow money to buy a commer- Some experts believe that owning a busi- Having more investment control is a major cial property. However, the loan to value ness premise is a flawed retirement strate- advantage of owning your commercial ratio (LVR) for SMSFs seeking to borrow gy, says AMP’s Heaven. “They argue how premises within an SMSF, according to for a commercial property is around 70%, can a business owner know what square Heaven. “For example, you’re vertically says Tony Haworth, executive director at metreage rate or staffing needs will be integrating your business model in that you AAP Finance Brokers. The LVR can vary required for the next 15 years? You might rent your commercial premises from your slightly based on the property’s location. outgrow that space and then you are left SMSF at a market rate,” he says. “Likewise, The business must be financially capable with a white elephant.” you don’t run the risk of being unexpected- of paying the rent to the SMSF, as this is Yet for barristers, medical specialists and ly removed as a tenant.” non-negotiable, adds Heaven. Cash flow other professionals who don’t intend scal- There is another benefit to leasing for the fund is also critical where the fund ing up their businesses, owning their own premises from your SMSF. “The rent you has borrowed to buy the property. “Fund premises through an SMSF is a worthwhile pay is effectively boosting your retirement trustees had better make sure that they’ve strategy. “It is a perfectly legitimate argu- saving,” says Tim Howard, advice techni- got enough rent coming in, and/or employ- ment to say, ‘I’ll take my little 100 square cal consultant at BT. “It’s a way of making er contributions, or personal contributions metres and I’m quite happy to just stay additional contributions to superannuation within the $25,000 cap that would allow within that space as part of my business outside the caps. The rent is also conces- them to service any debt.” plan,’ ” says Heaven. sionally taxed at 15% when it goes in, which is much lower than the corporate tax rate of Financial risks Anthony O’Brien is a small business and 27.5% for small business owners.” A commercial property is a lumpy personal finance writer with 20-plus years’ The capital growth on a shop or office asset that might tie up a lot of your experience in the communication industry.

MONEY OCTOBER 2017 57 WHATW IF? Annette Sampson

The tax office looks at your car expenses

Take care: whatever method you choose, you must be able to substantiate a claim

Don’t look now, but … costs are not deductible, as they are not That’s exactly what it’s doing. The tax directly related to performing your work office recently warned taxpayers it was duties. One exception is where you have paying close attention to work-related car a good reason for claiming – such as expenses this year. In particular, assistant being required to transport bulky tools or commissioner Kath Anderson says it will equipment to work. However, even then be looking at “standard” deductions to you must be able to prove your employer ensure they can be justified. required you to do so, and there was no safe to and from work. However, it turned out “Some people think they are entitled to a place to store them. the sign was stored on the school premises standard deduction for car expenses using Anderson says the tax office audited a so the claim was denied. the cents per kilometre method but this is railway guard whose claims were much Anderson says another pitfall is double not the case,” she says. “While it’s true you higher than others in the same occupation. dipping, or claiming expenses that your don’t need written evidence for claims of He had claimed car expenses to and from employer has already paid either through up to 5000 kilometres per year, you do need work because he had to transport bulky reimbursement or through a salary sacri- to be able to show that you were required to tools in his car. His employer told the tax fice arrangement. use your car for work, and how you calcu- office storage facilities for these items were One audit found a manager who claimed lated your claim.” available at work. It was the employee’s $3800 in car expenses did not actually own own choice to carry them back and forth. his car. It was held under a novated lease Common pitfalls So his claim was denied and he had to pay arrangement where the employer leases Anderson says a common mistake is $2000 for tax owed plus interest. the car on the employee’s behalf. The claim claiming car expenses for travel between In another case a school crossing safety was disallowed and the taxpayer was hit your home and place of work. These officer claimed for carrying his safety sign with a penalty.

THE CHALLENGE Maria Bekiaris Save $1K before Christmas Topping up your spending money could be easier than you think

epending on when you’re reading this, headlines lately is saving every $5 note Dthere would be no more than 11 weeks that you come across. Any time a $5 note or so until Christmas. The festive season hits your wallet, you take it out and put it is an expensive time and the costs can towards your savings. Surely you’ll come certainly add up. Our challenge this month across at least two $5 notes a week between is to save and make an extra $1000 between now and Christmas. TOTAL SAVING: $110. now and Christmas to help fund the We all know that giving up your daily additional spending. takeaway coffee and bringing in your own Let’s start with a few simple saving lunch to work is a smart way to save, but if challenges. One that has been making you find it too hard to do every day, why

58 MONEY OCTOBER 2017 DID YOU KNOW? More than 3 million people made a work-related car expenses claim in 2015-16, totallingaround$8.5billion.Manyofthesewereright at the limit that doesn’t require detailed records. BEST-CASE SCENARIO Commissioner Kath Anderson says the tax office has no issue readings of work-related with people claiming under the cents per kilometre method trips and the reasons andexpectsmostclaimsmaybelegitimate.Butitwantsto for the journey, and the remindtaxpayersthereisnosuchthingasafreeride. business-use percent- WORST-CASE SCENARIO age over this period. Ifyouhavemadeanincorrectclaimyoumaybeliablefor You can claim costs interest and penalties as well as any unpaid tax. such as fuel based on THE WILD CARD your actual receipts or As with all tax office crackdowns, not everyone estimates based on the who claims will attract attention. You are more odometer readings at the likely to be targeted if your claims are startandendoftheperiod unusually high for someone in youusedthecarduringthe your occupation. year.Wherethecarisusedfor both business and private use, expens- es must be apportioned. Thetaxofficehasacarexpensescalcu- lator at ato.gov.au. Simply enter “work relat- ed car expenses calculator” in the search fieldtofindit. Thegoldenrules Methodsofclaiming The alternative is the logbook method. Anderson says there are three golden FromJuly2015theoptionsforclaimingcar This is more generous in that you can rules to stay out of trouble. First, you have expenses were reduced from four possible claim things such as running costs and the to have spent the money yourself. Your ways to just two. decline in the car’s value (but not capital employercan’thavereimbursedyou.Sec- Under the cents per kilometre method costssuchasthepurchaseofthecaror ond,theclaimhastobedirectlyrelatedto youcanclaim66¢perkilometretravelled loan repayments) rather than being limited earning your income and, third, you need forworkpurposesin2016-17uptoamaxi- to 66c per kilometre. However, you are some type of records to prove your claim. mumlimitof5000kilometres.Thisisthe required to keep a logbook and odometer methodbeingtargetedbythetaxoffice, readingsforatleast12continuousweeks as you don’t need written evidence to showing how you used the car. This log- Annette Sampson has written extensively on substantiateyourclaim.However,youdo book is valid for five years. personal finance. She was personal finance need to be able to show how you worked The logbook must show the odometer editor with The Sydney Morning Herald,a outyourbusinesskilometressuchasbeing readingatthestartandendofthelogbook former editor of the Herald’s Money section able to produce diary records of work-re- period, the total kilometres travelled, the and a columnist for The Age. She has lated trips. start and finishing times and odometer written several books.

not simply aim for just one no-spending The most obvious way to make some extra$50aweekusingoneofthese dayeachweek.Assumingyoubuyone extramoneyistogetridofanyunwanted platforms. TOTAL SAVING: $550. takeaway coffee and lunch and a few other items. As they say, one man’s trash is If you’re happy to put in a bit of extra smallextras,youcouldsave$20aweek. another’s treasure, so you can declutter work, again we turn to the share economy. TOTAL SAVING: $220. andmakesomeextracashasaresult. Youcanboostyourbudgetbysigningup Takethetimetoshoparoundandseeif October is the perfect month as there todrivepeoplearoundinanUber,petsit youcanscoreabetterdealonanythingyou isanationalGarageSaleTrailonthe using sites like Mad Paws, or do odd jobs are paying for on a regular basis including weekend of October 21-22. Last year on Airtasker. Let’s say you make $50 insurance, mobile phone plan, internet the average household sale made $379. aweek.TOTALSAVING:$550. service, gas and electricity as well as any TOTAL SAVING: $380. Withthesesimpleideas,wehaveputan bankingproducts.I’dbesurprisedifyou Therearequiteafewwaysyoucanmake extra $1960 into our pockets between now didn’tsaveatleast$150byshopping someextracashbyrentingouteverything andChristmas–almostdoublethe$1000 around.TOTALSAVING:$150. from your tools to a room in your house thatwasouroriginalgoal.Youdon’thaveto Ontheflipside,insteadofcuttingback, andanythinginbetween.CheckoutOpen dothemalltomeetthegoalof$1000,sopick let’s look at simple ways you can make Shed, Spacer, Car Next Door and Airbnb to the suggestions that appeal to you most and some extra cash. name just a few. Let’s say you can make an you could be $1000 richer by December 25.

MONEY OCTOBER 2017 59 CRISIS MANAGEMENT Sam Henderson

Stuck on the money-go-round

WHEN FINANCES ARE GOING NOWHERE • Do you get the feeling that you’re just treading water financially? Don’t think you’re alone. In February, the ME household financial comfort report suggested that 25% of Australians have less than $1000 in available savings to draw upon in the event of an emergency. Here are some tips to help you get off the “money-go-round”.

ith stagnant wages growth, Ask for a pay rise a financial planner to help you navigate the rising housing and health costs, Another simple money hack is to ask for a big issues. An investment in yourself is the W and utility prices going through pay rise. While many people in government best investment you can ever make because the roof, we seem to be spending more on jobs or regulated environments won’t have it can pay a lifetime of dividends and give essential household items and less on dis- the freedom to do this, in private enter- you the best returns. Never underestimate cretionary goods. Savings continue to be prise you can often turn on the charm and your value and potential. under pressure and the fact is that many demonstrate your value to your beloved Australians will be underprepared in the employer, with a little kicker if things go Start your own business event of an emergency. So how can you well. A small pay rise, or a series of rises While we’re told many businesses fail in possibly get ahead in such circumstances? over time, can allow you to plan your finan- their first few years, many go on to flourish cial life with some clarity and confidence. and create a lifetime of wealth for their Do a budget owners. Many of my best and wealthiest In my last book, The One-Page Financial Educate to elevate clients are business owners who have Plan, I made some suggestions that may Education can elevate you to different pay created a flow of income from making the help you. The most important is the simple levels, provide career opportunities or most of an opportunity in business. Sure, process of awareness through a budget. By even allow you to start your own business. there are risks and I’d expect you to do your creating a budget, as mind-numbing as that It has long been a catalyst to achieve a bet- homework but the returns from successful can appear, it can change your life because ter life and millions of people have invest- small and medium businesses far exceed you become more aware of where you and ed in themselves to create opportunities. those of employees many times over. your partner are spending your money. You can download my budget spreadsheet at Look for a new job Break the inertia hendersonmaxwell.com.au/freestuff. With low unemployment in Australia at The money-go-round is not a nice place to the moment, there are always plenty of be. By taking action and pursuing an oppor- Get on the same page employers looking for good staff. If your tunity you can write your own financial and It’s very difficult to maintain your budget current boss won’t pay you well, then life story. Don’t just accept the status quo or if you have a partner, potentially a non- there’s a strong chance someone else will get caught in a state of inertia; there’s always Money magazine reader, who isn’t on pay a premium for a good employee just something you can do to improve your situ- the same page as you. I’ve seen figures like you! Don’t get stuck in a rut and accept ation and there are plenty of people to help indicating that around 60% of couples the same job conditions; do something you if you’re struggling to do it alone. Good argue over money, so expressing yourself about it and change your life at the same luck and grab the bull by the horns! in a constructive and respectful manner time. There are plenty of opportunities out can literally pay dividends. We spend so there just waiting for you! Sam Henderson is CEO and senior financial much time finding partners who share adviser at Henderson Maxwell and host of our values, and financial values are just as Invest in yourself Foxtel’s Sky News Business program Your important when it comes to maintaining a If you’re still struggling to see the trees Money Your Call – Retirement. He is also the comfortable and stress-free lifestyle. through the forest, then hire a life coach or author of three best-selling books.

60 MONEY OCTOBER 2017 Heidi Armstrong LIFE MATTERS

Keen teens blaze the trail We all need to encourage young people to consider starting their own business

hoosing a career is one of the most Getting started tives to help encourage young difficult and stressful decisions a Technology has changed the way we live entrepreneurs. They include the New Cyoung adult can face. At the ripe and work and opened a new realm of pro- Enterprise Incentive Scheme, which pro- old age of 17 we expect teenagers to know fessional possibilities. The internet has vides training, mentoring and income what they want from life and to make been the biggest game changer, completely support to budding business kids, and the choices that will impact their future transforming the way we conduct business. Exploring Being My Own Boss workshops, and finances. With access to a wealth of information, which give job seekers an insight into But the problem with this is that the instant communication worldwide and starting a business. options available to teenagers are usually platforms on which to market and sell your It’s the responsibility of parents to help limited to tertiary or TAFE education. So services, it has never been easier to start kids explore these options and encourage what if your passion sits outside a tradi- your own business. them to look into every opportunity. tional course or job offering? Despite this, becoming a “business own- To learn more about the Encouraging As a young adult I faced these same er” isn’t a widely accepted profession for Entrepreneurship and Self-Employment dilemmas but, unlike so many others, my school leavers. Without encouragement Initiative visit employment.gov.au. father encouraged me to consider running from parents and their schools it’s difficult my own business as a career option. for teens to know this is an option. Return on investment Now while his idea that I open my own The good news is we’re starting to see When it comes to starting a business, knitting shop (those who know me are some teens blaze the trail for their peers. financial factors can seem like one of the laughing out loud right now!) wasn’t my The recent success of teen entrepreneur biggest roadblocks. But, the funny thing cup of tea, it did open my eyes to the pos- Morgan Hipworth, who opened his own is, we have few hesitations in encouraging sibilities. I’ve no doubt that my own drive doughnut business in Melbourne, has been young people to go to university or TAFE to be self-employed stemmed from this widely publicised. despite the hefty costs. open conversation with my dad back when Examples like these show teens that it’s The average undergraduate university I was just a teenager. possible to turn your passion into a busi- degree can cost from $15,000 to $33,000 It’s no longer necessary for young adults ness, even if you’re a teenager. But we need a year. For a standard three-year degree to limit themselves to traditional job or to keep this momentum going and turn that’s as much as $99,000 in fees. And with study avenues. In the past, it was widely being a business owner into the norm. the federal government’s recent increases, believed that university study was the The federal government has started this will only get higher. safest and best option for career advance- doing exactly that. The Department of Given these facts, investing in a business ment. This is not always the case. Employment now offers a number of initia- that could have faster and greater returns According to the National doesn’t seem that risky. It’s Institute of Labour Studies at in the best interests of the Flinders University, nowadays economy and individuals fewer people gain full-time that more people pursue busi- employment after completing ness ownership. tertiary study. And despite It’s time for all Australians, the drop in graduate employ- young and old, to start encour- ment, the number of students aging each other to take risks commencing is higher than and be brave. After all it’s from ever, increasing from 20,000 in little steps like these that big 2008 to 27,000 in 2014. things can grow. With the job market chang- ing, now more than ever it’s time to encourage our kids to Heidi Armstrong is finance be proactive and pursue their expert for Money to Love, TV passions through a business of and radio presenter and thought their own. leadership award winner.

MONEY OCTOBER 2017 61 PROPERTY CASH FLOW When a granny is welcome

STORY MARK STORY

ithskyrocketingcapitalcityproperty Weigh up invest and access to bank finance should and would, in prices resulting in more families aperfectworld,dobetterwithaninvestmentproperty. housing multiple generations under today’s cash However, if you’ve only got $100,000 to invest, he says a one roof, it’s hardly surprising that flow with granny flat could, under the right conditions, be a smart granny flats are an increasingly way to start an investment portfolio without having to Wcommonfeatureacrossoursuburbs.Butbeyondfamily future capital borrow large amounts of money. matters,thehousingaffordabilitycrisisalsocreates While it’s not investing per se, Steve Waters, of the opportunities for those wanting to leverage the dormant growth when Right Property Group, says owner-occupiers who valueintheirbackyardthrougha“secondarydwelling”. comparing borrowmoretobuildagrannyflatcouldusetheextra With rental returns reducing as property prices (rental) cash flow to reduce their non-deductible debt increase, especially in Sydney and Melbourne, the backyard alotearlier. argumentforbuildinggrannyflatshasclearlygained granny Hesaysthefasteryoupaydownnon-deductible traction.However,toestablishwhetherbuildingone debt, the sooner you can move forward financially,and in your backyard makes investment sense it means flats with for baby boomers this could mean passive retirement thinking through the complete picture properly, fac- investment income. “If it’s costing you 5% to get a return of 10%- toring in your personal financial situation and doing plus,agrannyflatcanhelpyoudothis,”saysWaters. the all-important number crunching (see table “House properties “Italsohelpsmitigaterisk if you’re planning to go from vgrannyflat”onpage64). two incomes to one.” Forstarters,anycomparisonbetweenagrannyflat and an investment property must recognise that while UNINTENDED CONSEQUENCES theformeristypicallyayieldplay,thelatterhasgreater Damian Collins, of Momentum Wealth, recommends capitalgrowthpotential.Givenitscapacitytodeliver thatinvestorsbenchmarktheyieldfromagranny both yield and capital growth, Gavin Hegney, of Heg- flat against cash in the bank and fixed interest rates. ney Property Group, suggests those with $100,000 to Given that granny flats are not growth plays, he says

62 MONEY OCTOBER 2017 Who can build a granny flat?

hegovernmentsofNSW,WesternAustralia, TtheNorthernTerritory,TasmaniaandtheACT allow residents to rent out granny flats to generate extra income. Current development approvals typically average between six and eight weeks, while private certification can be as fast as 10 days. However, it’s a misnomer, argues Metropole’s MichaelYardney,toassumethatyourlocalcouncil will automatically allow you to build a granny flat, justbecauseyourstategovernmentisOKwithyour rentingoneout.“Councilsthatallowgrannyflats tendnottobeinhighcapitalgrowthareas,”says Yardney.“Oftenyou’llhavetousethisstrategyin outerandlowersocioeconomiclocationsthattend todeliverbelow-averagecapitalgrowth.” Regardless of whether they’re freestanding or an extension of the main dwelling, granny flats can’t be rented out to non-family in Queensland, Victoria and South Australia. However, there’s nothing to Honestly stop enterprising owner-occupiers in these states building granny flats for themselves, and renting out assess how the main house. comfortable costofagrannyflatwon’tautomaticallyaddsignificant you would be value to the total value of your property,” says Hegney. Adding further insult to a 50¢ return on every $1 invested,warnsWaters,iswhenaclumsilyconceived sharing your one-bedroom granny flat creates an eyesore in the backyard.Thiscouldimpingeontheresalepotential backyard of your quality four-bedroom home. investorsneedtoreceivea7%-8%upliftintheyield– Assuming the original house is also tenanted, you ideally12%-plus–tocompensateforpotentiallackof with could also have to reduce the rent if you’re suddenly capital appreciation. taking away half the backyard, warns Hegney. Basedona$120,000investment,a12%yield(about Toavoidtheseoutcomes,Hegneysaysinvestors $300inweeklyrent)foraone-bedroomgrannyflat strangers could contemplate buying a property with a granny inacapitalcitylookshighlyachievable.Assuming flat or secondary dwelling that’s already been tastefully youcancommandtheyieldyouneed,Collinsurges incorporatedintoit.Ifyouareconsideringaproperty investorstohonestlyassesswhythey’reattractedtoa with a granny flat, he recommends looking for one on granny flat option; whether they can achieve/maintain acornerblockwherebothdwellingshaveseparate the necessary uplift in yield; and, if they’re owner-oc- street access. cupiers, how comfortable they would be sharing their MichaelYardney,directorofMetropoleProperty backyard with strangers. Investment Strategists, says going into a granny flat Similarly,hesaysagrannyflatmaynotbethebest investment with your eyes wide open means you have useofabackyardifyourblockhaspromisingsubdivi- to be comfortable with running a mini-business. When sion potential. “Remember, while the granny flat won’t crunchingthenumberswithyouraccountant,hesays be worth much after 30 or 40 years, it’s the land value it’s also important to recognise that market conditions that will deliver future capital growth,” says Collins. can turn quickly. Whileareturnof12%-plusmaylookcompelling, Aswellasdealingwithtenants,hesaysinvestors Hegney also cautions against overcapitalising. For should also allow for loss of income during vacancies, example, with valuers gun-shy of overvaluing prop- unexpectedmaintenancecostsandthecostofhooking erties these days, there’s greater investment risk if a upthegrannyflattoutilities.“Ifyou’vegot$100,000 $100,000 granny flat – which you’ve borrowed against to spend on a granny flat, you could generate a much equity in your home to build – only achieves $50,000 in better return by putting it towards an investment-grade additional value. “It’s important to remember that the property or asset,” says Yardney.

MONEY OCTOBER 2017 63 PROPERTY CASH FLOW

$37.Inthegrannyflatscenario,theinvestorisableto $550,000 HOUSE V reduce their taxable income and therefore the amount WHAT YOU $120,000 GRANNY FLAT oftaxtheywillneedtopayonthepropertytojust$740 CAN BUILD GRANNY for the year. n addition to HOUSE FLAT Aweeklycashflowof$124isthereforeachievedfor Ihaving a separate thegrannyflat.Basedonthesenumbers,theinvestorwill entrance, a self- ANNUAL EXPENSES $35,000 $11,000 benefitfromanadditional$161incashflowbychoosing contained granny flat ANNUAL INCOME $25,0121 $18,2002 to build a granny flat compared with a new house. must have its own bathroom, kitchen, PRE-TAX CASH FLOW -$9988 $7200 CASH FLOW RECIPE bedroom/s, laundry TOTAL TAXATION LOSS -$21,8383 $20004 In summary, the investor who opted for the new house area and living space. isoutofpocket$1908annually,whilethegranny Whileeachstate TAX (RATE 37%) $8080 refund $740 paid flat owner receives an after-tax cash flow of $6460 hasitsowncriteria, annually. That’s a good outcome, but Bradley Beer, generally granny flats ANNUAL CASH FLOW -$1908 $6460 with BMT, reminds investors that the capital growth must also be: WEEKLY CASH FLOW -$37 $124 onthefuturesaleofthenewhousewillinvariably • Built on a property outperform the future sale of the property with the zoned for residential 1Based on $481pw. 2Based on $350pw. 3Depreciation $11,850. 4Depreciation $5200. The depreciation deductions have been calculated using the diminishing granny flat in the backyard. use and at least 450 value method. Source: BMT Tax Depreciation Admittedly, the depreciation will maximise within square metres in size. the first five to seven years. But Beer also reminds • The only granny Similarly, while the granny flat will receive a depreci- investorsthatwithdeductionsonthestructuralelements flat on the property. ation deduction, Yardney reminds investors it will also continuing for 40 years, the cash flow outcomes won’t • Owned by the incurcapitalgainstax(CGT)whentheproperty is sold, change considerably. same person who andthisisoneofmanyfactorstoconsider. But given that there are two sides to the cash flow owns the primary recipe,Watersremindsinvestorsthatwhileagranny dwelling. NEW HOUSE V GRANNY FLAT flat on the right property in the right area will contrib- • A maximum living To illustrate how the numbers might work in practice, utetocapitalgrowth,theoppositeisalsotrue.Onthe spaceofaround60 Money magazinehasconstructedareal-lifeexample wrongpropertyyoucouldpotentiallybecuttingouta square metres. that compares building a new house for $550,000 versus percentage of your future market when it comes to selling. • Have separate agrannyflatfor$120,000on an existing property as “If you rely on depreciation to support this cash flow, and unobstructed an investment (see table). you’re also rolling the dice if future tax laws change,” pedestrian access. • The investment house warns Waters. “That’s why you should always do Basedonsomepreliminaryresearch,withinthearea yournumbersonacash-incash-outbasis,before-tax ourfictitiousinvestorislookingtobuy,anewhouse dollars, and allowing for a vacancy rate of 20% is also willreceiveanannualincomeof$481aweekor$25,012 a good idea.” M annually.BMTTaxDepreciationestimatestheexpenses for the house, including interest on the loan, council rates, insurance, repairs and maintenance, at a total $35,000 annually. • Thegrannyflat By comparison, the investor could expect to receive $350aweekinrentforagrannyflat($18,200a year).Astheborrowingamountonthegrannyflat islower,estimatedexpensesforthisproperty, basedonBMTTaxDepreciation’snumbers, On the wrong are expected to total $11,000 annually. The investorwillbeabletoclaimaround$11,850 property, a in depreciation deductions for the house or $5200forthegrannyflat. granny flat DEPRECIATION FACTOR As our scenarios show, the investor’s tax could cut out situation will be quite different should they decidetobuildagrannyflatcomparedwitha part of your newhouse.Inbothscenarios,claimingdepre- ciationwillboostweeklycashflow. market when By claiming depreciation on the house, their weekly cost of holding the property is reduced from $121 to you sell

64 MONEY OCTOBER 2017 Pam Walkley REAL ESTATTE

When the reno bug bites Moving is expensive but be careful not to overcapitalise if you stay and upgrade

as your dream home become a Once you have decided the extent of your nightmare as your family has upgrade, and had it approved, you need to H grown and your space seems to get a handle on what it will cost you. have shrunk? Have you discovered that one To avoid spending more on the renova- bathroom and one living area are no longer tion than the value it adds to your home, adequate? So how do you decide whether research the market in your area to make you renovate or relocate? sure your improvements will fit in, says If you still love where you live it’s cer- Patrick Nolan, head of home lending at ME. tainly worth exploring the upgrade option, For example, it’s not a good plan to end up especially when moving costs – including with a four-bedroom, two-bathroom home the stamp duty slug, which can be as high in an area that is more popular with young as $43,000 on an $800,000 property – can singles than families. easily equate to 10% of the price of your “Put your hard-earned cash to work new home. For example, if that’s $800,000, where it will deliver the greatest benefit,” the $80,000 you save by not moving will be says Nolan. “High-quality kitchen and a boost to your renovation budget. bathroom renovations almost always add By staying put you also avoid the stress value to a property because they have of a move and the adjustment required to broad appeal. The same can’t be said of live in a new location. And you’re more outdoor spas or swimming pools, which likely to end up with a home that exactly Unlisted funds shine can be high maintenance.” suits your needs and desires. Many people pay for their renovations Not surprisingly, very high moving costs ustralian unlisted property funds by drawing on the equity they have built have seen more people stay put. House Aperformed strongly in the year up in their property using a home equity turnover, already the lowest for nearly to June 2017, delivering a total return loan, says Nolan. Equity is the difference 25 years, is still falling, according to the of 25.3%, according to data from between the value of your property and the Reserve Bank. And renovation lending has the Property Funds Association. This amount you owe on it. For example, if your reached a seven-year high, according to compares with a return of -5.3% for listed home would sell for $800,000 and your ABS figures. property over the same period. mortgage balance is $500,000, your equity One home loan lender, ME, has seen Five-year annualised returns were 21.1% is $300,000. loan applications grow by 48% and 25% for and 14.4% for unlisted and listed property If you don’t have a lot of equity – and cosmetic (an average of $40,000) respectively. Both outperformed all other remember you have to maintain 20% to and structural renovations ($400,000 investments over this period, including avoid expensive mortgage insurance – average) respectively over the six months local and international shares, fixed you could use a personal loan to pay for to June 2017. income and cash. a cosmetic makeover. If you want to stay put it’s crucial you Certainly it’s easier to find and invest The advantages of buying a new home have the space to upgrade your home to in listed property but two big unlisted include getting a place that suits you from suit your family’s needs. Local councils managers, Charter Hall and Centuria, had day one and avoiding the stress of living have rules about how much building they unlisted funds open at the time of writing. in the dusty, noisy and uncomfortable will allow on individual plots and this can Charter Hall’s include its $1.2 billion environment that usually accompanies a be confusing. Direct Office Fund, currently paying renovation. And you have the certainty of Often the best strategy is to employ an annual income of 6.25% with quarterly knowing what your financial commitment expert, such as an architect or other design distributions. Minimum investment is will be; remember, renovation costs often professional, to work out what is possible $20,000. Centuria’s Diversified Property blow out. and how to make your space, both old and Fund returned 19.52% to June 2017, new, work best for you. This will cost you including income of 5.03%. Minimum Pam Walkley, former property editor with but as someone who’s undertaken renos investment is $10,000 and distributions The Australian Financial Review, has both with and without an expert, I’ve are paid monthly. hands-on experience of buying, building, always found it to be money well spent. renovating, subdividing and selling property.

MONEY OCTOBER 2017 65 INVESTING SUPERANNUATION

STORY Picking SUSAN HELY winners Fundsrelyonhighlypaidexpertstoselectthebestinvestments. But members don’t always enjoy the rewards

n advantage of having your super with fund’s fees include what it pays its investment managers alargefundistheexpertteamwho as well as asset consultants, plus the cost of its own pick the investments. They are highly investment staff. The overall fee at the fund level is qualified, experienced and do it full about0.7%onaverage,arounddoubletheinvestment time. But how much extra value these manager’s fees. Australian equities are unique in that Aexpertsbringtoafund’sperformanceisdebatable. the after-tax index performance is above the pre-tax Inadditiontotheirinternalinvestmentstaff,mostfunds resultbecauseoffrankingcredits. also employ external asset consultants who recommend If investment options aren’t outperforming, what which outside investment managers should be hired about the underlying managers? The typical Austral- or fired. The consultants are in constant contact with iansharesmanageroverthethreeyearstoJune2017 investment managers, reviewing their processes and (the median manager in Mercer’s investment manager performance, and know when there are key personnel survey) returned 7.8%pa on average compared with changes.Assetconsultantshaveahugeinfluence,as 6.6%pa for the S&P/ASX300 index before tax and fees. theyarethegatekeepersforbillionsofdollarsofassets. So the typical Australian shares manager is ahead by There is a high degree of concentration in the Aus- 1.2%paoverthatperiod.Evenwithfeesof0.3%-0.4% tralian super system, with four main consulting groups: thatstillleavesagoodsliceofactivereturn.Australian JANA,FrontierAdvisors,TowersWatsonandMercer. sharesmanagersdotendtooutperformtheindex,in Asassetbasesgrow,superfundshaveexpandedtheir contrasttowhathappensintheUS.Butthefundmem- in-house capabilities, employing asset consultants as ber choosing the Australian shares option isn’t seeing chiefinvestmentofficersormembersoftheinvestment this outperformance. Somehow the fund’s hiring and committeeorinvestmentteam. firing process seems to allow performance to leak away. Onewaytoseehowsuccessfultheassetconsultants ArecentstudyintheUSlookedathowexpertthe areatpickinggoodmanagersistolookatindividual asset consultants are. There, big pension funds’ invest- asset classes such as Australian or international shares. ment managers also underperform non-recommended Super members can often choose to put their retirement managersbyabout1%pa,accordingtoastudypublished savings in individual asset classes and make up their in The Journal of Finance in the US in 2016. While past ownportfolio,ortheycaninvestinthediversified performance was a factor, the researchers found that optionssuchasbalanced,growthorconservative. the manager recommendations were also biased to Membersofmanyfundscanincreasinglychoosetoput how well managers presented themselves. This was theirmoneyintodirectoptionsincludingshares,term characterisedbytheskillsoftheirsalespeople,the depositsandexchangetradedfundsthatcoverbroad- slickness of their presentations and the quality of their basedindexessuchastheS&P/ASX300(Vanguard investment reports. Investment managers often say their Australian Shares Index) or the S&P/ASX 200 (State best opportunities are under-researched companies Street Global Advisors). that their competitors have ignored. But it seems that When it comes to performance, the Australian shares consultants in this study were biased to obvious choices. investmentoptionofthetypicallargesuperfundhas The performance problem occurs when funds, acting returned 7.3%pa over three years, after fees and tax, on the advice of their consultants, try to choose the best basedonSuperRatingsnumbers,comparedwiththe managers.TheAustralianandUSfiguresshowthatthe S&P/ASX300after-taxbenchmarkof7.2%pa–virtu- managerselectionprocessistrickyandcanshredwhatever ally in line. Worth noting is that super funds report advantage the managers would have been expected to performance after fees and tax, and so it needs to be achieve.Itcouldbejustaseffective,andcheaper,to have compared with a benchmark that is also after tax. The invested in an index fund in the first place. M

66 MONEY OCTOBER 2017 TOP 5 AUSTRALIAN SHARE OPTIONS 3-YR 5-YR OPTION PRODUCT FEES1 1-YR FUND INVESTMENT OPTION RANK RTN RANK RTN RANK SIZE RATING $50k RTN (%PA) (%PA) Catholic Super – Australian Shares $89m Platinum $469 16.9% 1 10.6% 1 13.7% 1 MLC MKey – MLC IncomeBuilder $95m Gold $688 14.0% 16 7.6% 12 13.5% 2 Kinetic Super – Australian Super $59m Gold $411 15.2% 7 8.5% 5 13.2% 3 StatewideSuper – Australian Shares $134m Gold $418 14.9% 8 9.0% 3 13.0% 4 REST – Australian Shares $268m Platinum $462 14.0% 17 8.2% 8 13.0% 5

TOP 5 INTERNATIONAL SHARE OPTIONS 3-YR 5-YR OPTION PRODUCT FEES1 1-YR FUND INVESTMENT OPTION RANK RTN RANK RTN RANK SIZE RATING $50k RTN (%PA) (%PA) OnePath Integra –OnePath Global $29m Silver $990 13.5% 43 14.7% 1 18.2% 1 StatewideSuper – International $54m Gold $468 19.5% 5 13.7% 2 17.3% 2 CareSuper – Overseas Shares $97m Platinum $478 18.6% 7 12.5% 6 17.1% 3 Plum – International Shares Index $37m Platinum $478 14.7% 34 12.0% 9 16.7% 4 UniSuper Accum (1) – International $342m Platinum $351 18.4% 9 13.5% 3 16.6% 5 Source: SuperRatings. Based on five-year returns after fees and tax. 1Annual fees (including member, admin and investment) on a $50,000 balance at June 14, 2017.

IT PAYS TO KEEP IT SIMPLE ome super funds do Supersince1993.Hejoinedas Hostplus, which has 18 Sachieve strong outper- CIO in 2010. Australian share managers, formance over time. For exam- Catholic Super has $8.5 was ranked ninth. ple, Catholic Super has scored billion under management Oneofthereasonsthereare thehighestperformancefor across all investments. It has so many investment managers Australian shares over one year seven Australian share man- is that boutique managers (16.9%), three years (10.6%pa) agers in the balanced option: have a cap on funds under andfiveyears(13.7%pa). four large cap, two small cap management. They won’t keep The reason it has done so andone“betterbeta”.Thebal- taking large amounts of funds. well, according to Garrie Lette, anced pension option has three Typically super funds thefund’schiefinvestment Australian equity managers. have large-cap specialist officer, is that asset selection is “We don’t over-engineer share managers and small- outsourced to high-conviction things but stick to the ‘keep it cap specialists. Some have a boutique managers who have simple’philosophy,”saysLette. value style of investing, others relatively modest amounts Gettingtheblendofmanag- a growth style or an absolute under management, rather ers right is key. It is important return style. than big-brand managers. to have managers that will per- Some super funds are “We understand that they form well in different markets. increasingly expecting their go through difficult investment “When one is doing poorly, equity managers to invest periods but we don’t panic. another may be doing well,” along sustainable lines, as it is Weareinforthelongterm,” he says. important to members. he says. “They have reward- AustralianSuper has one of “All of our active managers ed our loyalty and patience. the biggest amounts in the have built-in sustainability Every manager has had a Australian shares investment intheirprocesses,”says difficult time but they have option,atover$2billion.It Lette. “But we don’t insist on come good.” spreads the assets across excluding any investments Lette has worked as an 15 Australian equity managers. such as fossil fuels but expect asset consultant with Mercer Itwasranked10thover our managers to be aware of and has been advising Catholic five years by SuperRatings. the risks.”

MONEY OCTOBER 2017 67 INVESTING SMART BETA

THE A growing number of fund EXPERTS managers are looking at alternative strategies Gain to boost returns

Chris Brycki, CEO, an edge Stockspot 10 MOST-ASKED QUESTIONS

Michael Elsworth, general manager alterna- tives & specialised research, Lonsec

Dugald Higgins, senior investment analyst, Zenith Investment Partners

Anshula Venkataraman, analyst manager research, Morning- star

68 MONEY OCTOBER 2017 What is smart beta? indicative net asset value (iNAV), throughout I’ve heard about factors when Q the day. This is unlike traditional unlisted Q people talk about smart beta – Smart beta is all about index construction, funds that are only priced at the end of the what does that mean and what is the which refers to which stocks (or other assets) day. Greater transparency allows investors difference between a single factor make up an exchange traded fund (ETF) and to make more informed decisions, and in and multi-factors? their relative size within that index. Where an increasingly regulated and competitive traditional market-capitalisation-weighted environment the industry continues to face Factors are what drive risk and return in a ETFs (such as the Vanguard Australian Share pressure to improve transparency. This gives portfolio. Factor investing is all about targeting Index) consider that market size incorporates ETFs an advantage over active managers. these drivers. These can encompass strategies “all factors”, smart beta ETFs put more focus ANSHULA VENKATARAMAN that pursue an economic or technical factor on some factors over others. Some common to deliver a different outcome to a market- smart beta factors include growth versus value, How would smart beta fit into a cap-weighted strategy. There are many small cap versus large cap or fundamental Q portfolio with other investments? different factors used in ETFs, including factors like dividends. fundamentals such as value, momentum, CHRIS BRYCKI The smart beta funds in Australia are designed quality and low volatility, as well as factors to capture the performance of certain factors. such as dividend tilts and modified market What are the risks? The type of factor will determine the role it cap strategies (equal weight etc). Given that Q can play in a portfolio and the funds it can single factors are cyclical and prone to periods All smart beta ETFs are taking bets on certain be blended with. Australian or global smart of underperformance, multi-factor investing market factors being more important than beta equity funds generally sit within the seeks to blend factors to reduce cyclicality others. High-dividend and fundamental smart growth component of a balanced portfolio and provide better balance. beta ETFs have a bias towards value stocks. and can be used to blend with other core DUGALD HIGGINS Equal-weight ETFs have a bias towards small (market-cap-weighted) exposures, such as companies. The risk of smart beta ETFs is the S&P/ASX 200 Index or S&P 500 Index Is smart beta like investing in that the factors they’ve selected don’t perform. as part of a core-satellite approach. Q an active fund? Smart beta strategies are often marketed as A challenge with Australian smart beta being able to “beat the market”. However, the strategies is lack of diversification in the All index funds, by definition, are passive truth is often a lot more murky. Many have only marketplace. Australian smart beta portfolios investments. This includes smart beta. There’s outperformed from backtesting over a select generally take more stock- specific risk than no fund manager making investment decisions historical time period and perform poorly their global counterparts. The return to an and all buying and selling is done according after they launch. Others, like equal-weight Australian value portfolio might depend more on to a strict set of rules. ETFs, only outperform because they are taking specific developments of a particular company However, smart beta gives investors the more risk. Investors should be careful of smart rather than what has happened to “value” ability to tilt their portfolios towards certain beta ETFs that charge significantly more in more broadly. These stock-specific effects styles by weighting their portfolio differently. fees than market-cap-weighted ETFs as that’s tend to wash out over time but can have a big Often active fund managers have similar likely to harm their returns. Our [Stockspot] impact on shorter-term returns. And for smart style tilts in their portfolios – like towards 2017 ETF report shows that most smart beta beta portfolios that rely on diversification to value, growth, small or large companies. ETFs underperform the broad market ETFs harness factor returns, this makes Australia Smart beta aims to combine elements of after fees, which is why we don’t typically a challenging universe. This argument does passive index investing and active fund recommend them to clients. not invalidate the use of factors in Australia. management to deliver the best of both CHRIS BRYCKI However, investors need to be aware of the worlds: transparency, broad diversification largest positions and understand how much and ability to tilt your portfolio to certain Smart beta providers talk a stock-specific risk the investment is taking. types of stocks, all at a low cost. Q lot about transparency. Why is MICHAEL ELSWORTH CHRIS BRYCKI that important?

There are two key ways strategic beta ETFs provide transparency, similar to their market cap peers. The first is that, given the exchange Greater transparency allows investors to traded structure, investors have access to the full holdings of strategic beta ETFs. The make more informed decisions ... and this second is that investors have access to the price of the ETF, or the net asset value (NAV) or gives ETFs an advantage

MONEY OCTOBER 2017 69 INVESTING SMART BETA

Not all smart beta ETFs are designed to beat the broader market ... they merely deliver a different outcome based on their rules

Understand how factors perform in various Performance will vary across these groups situations to set performance expectations. relative to market cap ETFs as a result, and DUGALD HIGGINS this is what we have observed. Within large cap Australian equities, for example, most How much should I pay for a dividend screened/weighted ETFs lagged Q smart beta product? their market cap counterparts over the two years to August 31, 2016. However, these Most smart beta products track a products made a strong comeback as value customised or rules-based, non- stocks rebounded over the year to August 31, discretionary and transparent index. 2017, beating traditional passive portfolios. The amount of work involved on behalf ANSHULA VENKATARAMAN of the issuer is not as complex or labour- intensive as that of an active manager. What are some of the best- Therefore, the starting point should be the Q performing smart beta cost of a broad-based market-cap-weighted ETFs available? index fund plus a small fee for the intellectual property associated with the index rules Smart beta ETFs are driven by the underlying and methodology. Smart beta product fees asset class as well as their strategy and factor typically range from 0.30% to 0.50% a year tilt. The strongest performers tend to do compared with active management fees best alongside their respective asset class for long-only products of 0.80% to 1.2%pa. exposures. The top five performers (by total What do I need to consider MICHAEL ELSWORTH net return) for the 12 months to July 31, 2017 Q when comparing smart are shown in the table. beta options? Have smart beta ETFs per- It should be remembered that not all smart Q formed better than index ETFs? beta ETFs are designed to beat the broader When comparing, consider the factor exposure market. They are merely designed to deliver of your existing portfolio to determine what It’s hard to bucket all strategic beta ETFs a different outcome under the parameters you need and your goals. Your objectives together. There are a number of strategic of their rules-based approach. will drive which factor(s) to capture. From beta strategies available in Australia, ranging DUGALD HIGGINS there, identify and group ETFs by their from dividend screened/weighted to quality- factor tilt (dividend, alternative weight, driven products. Products can also be split To find out why you should consider investing in fundamental etc) and examine the resulting by asset class, though Australian and global a smart beta ETF, and the available strategies, risk characteristics such as diversification, equity products dominate the local market. visitmoneymag.com.au/smartbetaquestions. M volatility and turnover levels in each ETF. Measure these characteristics against both the TOP 5 SMART BETA ETFS broader market and how they will complement 1-YR TOTAL NET FUND NAME (ASX CODE) EXPOSURE/FACTOR (or detract) from your portfolio. Finally RETURN consider costs, both in terms of fees, trading ETFS S&P 500 High Yield Low Volatility (ZYUS) US equities/dividend 17.34% costs and efficiency. Remember that certain factors may exhibit a low correlation with VanEck Vectors Australian Resources (MVR) Australian equities/modified market cap 15.28% one another while others may be highly ETFS S&P/ASX 300 High Yield Plus (ZYAU) Australian equities/dividend 15.03% correlated. Also, while individual factors BetaShares FTSE RAFI Australia 200 (QOZ) Australian equities/fundamental 13.67% may outperform market cap strategies over Russell Australian Value (RVL) Australian equities/fundamental 13.49% the long term, they can often underperform in different shorter-term environments. Source: Zenith Investment Partners. For 12 months to July 31, 2017

70 MONEY OCTOBER 2017 INCOME INVESTING

STORY PAM WALKLEY Your hard- earned savings Hungry will waste away in a term deposit. Thankfully, for yield there are other ecord low interest rates are great if HOW LOW CAN YOU GO? you’repayingoffamortgageorreduc- diversified ingdebtbutforthosewhoneedtolive TERM JUNE 2016 JUNE 2017 DIFFERENCE investments off investment income, including 30 days 2.45% 1.62% -0.83% retirees,it’sbeenveryhard.Leave 60 days 2.55% 1.70% -0.85% that will Ryourmoneyinabankaccount–wheredepositsupto provide a $250,000 are guaranteed by the federal government – 90 days 3.00% 2.18% -0.82% and your spending power goes backwards. But the 180 days 3.30% 2.25% -1.05% decent income alternative – shares and other better-paying investments 270 days 3.10% 2.10% -1.00% –incursmorerisks. 1 year 3.05% 2.40% -0.65% Term deposit rates have plummeted over the past year, 2 years 3.10% 2.55% -0.55% withtheaverageratesfortermsbetweenonemonthto five years falling between 0.47% and 1.05% in the year to 3 years 3.20% 2.66% -0.54% June2017,accordingtoresearchfromCanstar(seetable). 4 years 3.10% 2.63% -0.47% Having a spread of different types of assets, including 5 years 3.20% 2.73% -0.47% some cash, is the key. Diversifying your portfolio will Source: canstar.com.au. Based on an amount of $25,000. Rates are current as of help to buffer the risks involved. June 20, 2016 and June 20, 2017.

MONEY OCTOBER 2017 71 INVESTING INCOME

Retireesnotwantingtoerodetheircapitaltooquick- Another new listed investment, the Magellan Glob- ly should consider having some of their funds in the alTrust(MGG),aimstoprovideinvestorsatargetcash sharemarket, particularly dividend-rich Australian distributionof4%ayearfromaportfolioof15to35of stocks.It’simportanttorememberthatshareinvesting the world’s best companies. isnotshorttermandyouneedtousemoneythatyou “Webelieve it is important that Australian investors canlockawayforatleastthreetofiveyears.Nobody diversifyameaningfulportionoftheirequityinvestments wantstohavetosellwhensharepricesarefalling into global equities,” says Hamish Douglass, co-founder, becausetheyneedthecash. CEOandCIOoftheMagellanFundGroupandportfolio TheAustralianmarketisuniqueinthatthereare manager of the new LIT. “The available investment many companies that pay healthy dividends and also universe in Australian equities is relatively narrow and, enjoyfrankingcredits,meaningyoucandomuch in our opinion, remains heavily dependent on the better than the measly returns from term deposits. ongoing economic success of China, the domestic Butformany,choosingtherightstocksisfarfrom economyandthelargeAustralianbanks.Companies easy,soit’sworthwhileconsideringamanagedfund, such as Alphabet [the owner of Google], Apple, Microsoft, exchangetradedfund(ETF)orlistedinvestmentcom- Nestlé,PayPalandYum!Brandsareworldleadersin pany or trust (LIC/LIT) set up to maximise yields. Fund theirfieldsthathavenoequivalentsontheASX.Australians managersrecognisethisandhavebeenbusydevelop- are familiar with these names because we use their ing new investment vehicles for yield-hungry investors. products and services all the time.” The trust aims to invest at a discount to its assessment Risk-adjusted returns of each company’s underlying intrinsic value. “We First off the block are two listed investment trusts. believe investing in such a portfolio should generate ThesehaveasimplerstructurethanLICsandare Nobody attractive investment returns over time while reducing similar to a property trust, except they invest in other theriskofapermanentcapitalloss,”saysDouglass. typesofassetsratherthanofficeblocksorshopping wants to DistributionswillbepaidtwiceayearandMGGhas centres. LITs are a model that’s entrenched in the UK specified its initial payments to provide unitholders market but has not taken off in Australia, where about with certainty. It will pay 3¢ per $1.50 unit each half $33billionhasbeenraisedbyLICs. have to sell year (starting in December 2017) in the first two years The MCP Master Income Trust (ASX: MXT) aims andafterthatseta4%annualisedyieldbasedona to provide investors with income from Australian when share rolling 24-month net asset value and announced six corporate loans. Its target return rate is the Reserve months in advance. Bank cash rate plus 3.25% net of fees (4.75% currently). prices are Distributions are paid monthly. “Smoothing” strategy It’sthefirstASX-listedinvestmenttrusttocover A feature of the Magellan trust that might not win corporate lending, providing investors with exposure falling favour with investors is a decision to cap “cash” distri- to a portfolio that reflects activity in the Australian butions and force unitholders to reinvest “excess” corporateloanmarket,diversifiedbyborrower,indus- because distributions, says investment analyst John Kavanagh, try and credit quality. The trust initially will have fromTheRub,anonlinepublicationaimedatretail exposure to over 50 individual investments with a they need investors. near-term target of 75 to 100 individual investments. Undernormalcircumstances,trustspayoutall Andrew Lockhart, MCP’s managing partner, says the cash incomeandrealisedcapitalgainstounitholders,says thetrustpresentsauniqueopportunityforinvestors Kavanagh. But in years when the net income or net to access an ASX-listed fixed-income investment. “The capital gains earned by the Magellan trust exceed the trust offers investors exclusive access to the highly distribution target, the excess will be required to be attractiverisk-adjustedreturnsavailableinthecorpo- reinvested as additional units through the distribution rate loan market, historically only available to regulat- reinvestment plan (DRP). edlocalandinternationalbanks. Investors usually like to make their own call about “Fixed income is a vital component of a balanced whether they reinvest their returns and some might investment portfolio. Fixed-income investments offer see this condition as a deal-breaker, says Kavanagh. predictablecashincomewithlowriskofcapitalloss. “Another possible concern for investors is that when We anticipate the trust will resonate strongly with retail ‘excess’ distributions are reinvested they will not qual- andself-managedsuperfundinvestors,whohavetra- ify for the DRP discount of 5% that Magellan is offering.” ditionally had low allocations to this asset class.” AspokesmanforMagellantoldTheRubthattheaim Between 2000 and 2016, Australian corporate bonds ofthedistributionstrategyistwofold:togiveinvestors generated a median return of 6.7% a year, with a high a consistent and predictable yield through a “smooth- of11%inoneyearandalowof3%,with only cash ing”mechanismandtousetheDRPtosupporttheunit offering lower volatility of returns. price and thus avoid the problem of having the trust

72 MONEY OCTOBER 2017 tradeatadiscount 2017, outperform- to its net asset ing its benchmark, value. the MSCI Total One aspect of Return Index, by theMagellanfloat 3.88%pa. that was applaud- Longer- ed by investment establishedproducts analysts was its for investors seeking decision to cover the income include the cost of listing, typi- Vanguard Australian cally about 2.5% for a Shares High Yield ETF LIC, to enable the trust (VHY)thathadatotal totradewithoutadiscount returnof11.42%fortheyear on debut. With MGG due to to July 31 and an average five- list on the ASX on October 18 we year return of 10.54%pa. willsoonknowifthisstrategyworked. RussellInvestments’HighDividend Another new LIC, VGI Global Invest- Australian Shares ETF returned 9.82% in ments (VGI), also absorbed all establishment costs theyeartoJuly(5.35%distributionreturn)and11.06%pa sothatthesecuritieswouldtradeinlinewiththeirnet overfiveyears(5.69%distributionreturn).Andtwobig asset value upon listing rather than a discount, as is dividend-seeking LICs, Clime Capital (CAM) and Wam usually the case. Capital (WAM), are yielding 5.6% and 6.1% respectively. VGI Partners, a high-conviction global equity man- BecauseETFs,LICsandLITsarelistedontheASX agerbasedinSydneyandNewYork,islookingtorepli- they are very liquid and you need only $500 to start catethemethodologiesemployedbyitsunlistedVGI investing in them. FOLLOW Partners Master Fund via the new LIC. It will invest both THESE long and short in global equities. The portfolio managers Unlisted universe will also employ a currency hedging strategy while There’salotmorechoicewithmanagedfundsbutfor RULES aiming to deliver strong risk-adjusted returns. some investors it’s too much, and the complications of Unlike the previous products outlined in this article buying and selling can also be a turn-off. Some man- • Don’t leave thisLICisnotaimedatprovidingregularincome.“Deliv- agers have ASX-listed versions of their funds, called all your money in eringahighdividendisnotaprimaryobjectiveofthe mFunds, but there are far fewer of these. the bank. investment strategy or the manager,” says the prospectus. As an example, the Legg Mason Martin Currie Equi- “The investment strategy’s primary objectives are focused ty Income Trust has been a good long-term performer, • Invest in a on capital preservation and generating superior risk-ad- returning5.61%netovertheyeartoJuly31,8.73%pa diversityofincome- justed returns over the long term. As a result, there may overthreeyearsand13.25%paoverfiveyears.The producing assets be extended periods where the company does not pay minimuminvestmentis$30,000. so you don’t have regular franked dividends to shareholders.” Mortgage funds are another investment generating all your eggs in TraditionallyVGImanagedcapitalforhigh-net-worth higherreturnsthantermdepositsbutthesehavehad one basket. investors with the minimum application amount for achequeredhistorysoit’simportanttochoosecare- theirunlistedfundsittingat$1million.ThenewLIC fully. LaTrobe’s 12-month term account (formerly the • Research the offers retail clients rare access to an investment vehicle Pooled Mortgages Fund) has won Money magazine’s products you buy managed by a team with a long track record. Best Mortgage Fund award eight years in a row. carefully; if you Themethodologyhasbeensuccessful,returningan LaTrobewasoneofahandfulofmortgagefund don’t feel equipped annualised14.6%,sinceitwasestablishedabout8½ managersthatmadeitthroughtheGFCandit’sbeen to do this seek yearsago,outperformingtheMSCIWorldIndex(AUD), in business for over 60 years. You can access this fund professional help. which returned 10.7%pa over the same period. with a minimum of $1000 and all money is invested in Another investment in the pipeline aimed at providing cashorloanssecuredbyfirstmortgagesinAustralia. • Formanyinves- income as well as growth is Roger Montgomery’s first It’s paying 5.2%pa and distributions are monthly. tors choosing indi- exchangetradedmanagedfund(ETMF)tobequoted Yield-hungry investors are embracing P2P (peer-to-peer) vidual shares is too ontheASX.“Thefundwillmirrorourverysuccessful lending, even though it’s relatively new in Australia. hard; pick managed Montgomery Global Fund, offering access to extraordi- RateSetter, locally owned but part of the RateSetter group funds, ETFs, LICs nary global companies not available through much foundedintheUKin2009,enablesyoutostartwithas or LITs with a track larger global funds,” says Montgomery. The fund will little as $10 with lending terms of between a month and record of construct- alsotargetaminimumannualdistributionyieldof4.5%. fiveyears.Interestratesyoureceivevarybutatthetime ing income-produc- TheMontgomeryGlobalFund,whichwasestablished of writing they were 3.8% for one month, 5.2% for one ing portfolios. in July 2015, returned 6.99%pa in the two years to July year, 7.8% for three years and 9% for five years. M

MONEY OCTOBER 2017 73 INVESTING SUPER

STORY NICOLA FIELD

Super funds turn to technology to encourage memberstotakeanactive Smart interest in their savings thinking

74 MONEY OCTOBER 2017 he days when you only heard from your ority. Employer-paid super contributions are frozen at super fund once a year via a statement in 9.5% until July 2021, when they go to 10%, and growing

INSIDE 2017 & 2018 the mail are over. Funds are investing in numbers of baby boomers are reaching preservation SUPER CHANGES SMART STRATEGIES FOR YOUR 20s, 30 s, SPECIAL EDITION 40s & 50s PLUS YOUR WEEKLY ISSUE 5$995 www moneymag digital technologies that help members age and starting to draw on their nest egg. It’s putting com au BUDGET FOR RETIREMENT stay in touch with their retirement sav- pressure on super funds to foster member loyalty and YOUR 2017 Tings anywhere at any time. The push to expand digital grow their funds under management. services is a plus for our retirement nest eggs. Despite the In response, funds have started to invest heavily in SUPER nation’s collective super savings reaching $2.3 trillion, digital services. A study by IQ Group found virtually all GUIDE • 16 THINGS YOU SHOULD KNOW • BOOST LESS TAX • ACTION PLAN FOR CASUAL WORKERSYOUR SUPER AND PAY SUPER AT RETIREMENT • ACCESSING • HOW MUCH YOU REALLY NEED YOUR many Australians remain out of touch with their super. super funds allow members to join and switch invest- WORST FUNDS THE SWEET • THE BEST & + SPOT: AGED PENSION + SUPER Two out of five people don’t know how much they have ment options online. The vast majority provide online + PAUL CLITHEROE SUSAN HELY Your super How much you LOOKING FORWARD questions should FOCUSING ON DRAWDOWN: answered be paying WHAT NEEDS TO BE DONE IN RETIREMENT PHASE in super fees in super, and the system is awash with $14 billion in lost retirement calculators and around 70% have the capa- Our experts Alex Dunn n, Martin Fahy, Kirby Rappell or unclaimed super. bility to let members search for lost super via the fund’s Many in the industry hope digital services will own website rather than heading to the tax office site. SUPER change all this, and it seems interest in digital tools Even the traditional super statement is no longer a GUIDE 2017 among members isn’t limited to tech-savvy millenni- one-size-fits-all document. Many funds give members als. Andrew Howard, chief operating officer of REST the option to receive statements via email and SMS. This is just one of Industry Super, which has introduced a number of digital REST has gone a step further, providing interactive the articles you’ll service options, says: “We are seeing strong take-up statements with the capability to let members consol- find in our third across the full spectrum of our members.” idate their super. annual Super Guide, which is on sale Key drivers Streamlined services now and includes According to Howard, several broad trends are driving Other digital channels are still emerging. Live web chat everything you the push to digital service channels. “Smartphones have is available with just one in four funds, and a fraction need to know about been with us for a decade, putting the power of a super- of funds provide online advice. However, where these superannuation. computer into consumers’ hands,” he says. “This has services are available, members can enjoy a streamlined fuelled expectations that consumers can have services customer experience. You’ll find: delivered online or over the phone, allowing them to REST has invested in a virtual agent known as Roger. • A lowdown on the do what they want, when they want. Superannuation “Roger is an automated response mechanism that han- changes that were funds are not immune to this expectation.” dles customer inquiries made via the website’s search introduced in July. While younger fund members have grown up expecting function,” says Howard. He says Roger manages 6000 • A 10-point nothing less than digital services, Howard says their to 7000 inquiries each week and 23% of people surveyed checklist for different ranks are being swelled by those workers who have say Roger saved them a phone call. ages: 20s, 30s, 40s benefited from compulsory super for the full 25 years REST members can also engage in live chat through and 50-65. since its inception in 1992. “These fund members now a pop-up on the website that allows visitors to connect • How to handle have a good chunk of money invested in super, so they with the service team in a manner similar to SMS volatility. take a keen interest in their retirement savings.” messaging. “We handle about 2000 of these chats each • Smart ways to From the funds’ perspective, the cost of new tech- week,” says Howard. boost your super. nology has fallen over time while the capabilities have While convenient for members, the downside of • How much you increased. “This makes it both more achievable and digital tools is the potential for funds to lose the human need to retire. more attractive to introduce digital service options,” touch. “It is critical that digital options incorporate a • How to manage says Howard. For large funds like REST, which has mechanism that allows a real person to intervene,” says your super at around 2 million members, digital service channels Howard. “Roger, for instance, recognises the point where retirement. can provide a cost-effective way to stay in touch with people are not getting an answer and that’s when the existing and prospective members as well as employers. chat option pops up, or an offer is made for a call from Plus lots more. As well, there’s another factor behind the race to our service team.” Get your copy now embrace digital service options. from newsagents or After years of managing super’s strict compliance Impressive app functions online at magshop. regime and bedding down the “simpler super” sys- One area where super funds still have a way to go is com.au – simply tem, funds are now well placed to focus on consumer mobile apps. More than 80% of funds have optimised search for “super engagement. And in today’s highly competitive market, their website for mobile but the availability of apps is far guide”. improving member engagement has become a top pri- from widespread. In Canstar’s 2016 super rating report,

MONEY OCTOBER 2017 75 INVESTING SUPER

only 13 out of 67 funds classified as suitable for thosebuildingtheirsuperofferedanappto members. However, where they are available the range of functions can be impressive. KineticSuper(whichismergingwithSunsuper) introducedanappin2016thatallowsmembers to view their balance, update contact details andchangeinvestmentoptionsaswellas check and change insurance cover and view or change account beneficiaries. ANZ Smart ChoicesuperoffersitsGrowbyANZapp, whichprovidesdetailsofsuperalongside a member’s banking, shares and insurance. AMP’sFlexibleSuperlinkstotheMyAMP apptotracksuperbalancesandcontributions, monitorinvestmentsandstarttheballrolling to combine accounts. NichefundGROWSuper,anewcomer,has bodyASFAfound80%offundsseedigitaladvice anappwithaninterestingtwist,allowing as an absolute must but to date only 20% are memberstoroundupeverydaypurchases investinginit.RESTIndustrySuperisamong to the nearest $1 or $5 with the spare change the funds dipping its toes in this pool, offering goingtotheirsuperaccount.It’saneffortless Although in its infancy, online advice that members can use to review and financially pain-free way to give super and implement investment choice. “Over the savings a boost. digitaladvicecan horizon we’re likely to see the use of artificial More recently, apps are helping to combat the intelligence (AI) for decision-making,” says problemofemployersdodgingtheircompulsory REST’sHoward.“AIcaninvolverules-based superobligations.Mostworkersassumetheir offer a win-win to both engines and could have applications in provid- employer is doing the right thing, especially ingadviceforthingslikeclaimassessments iftheyseeafigureforsupercontributionson members and funds for life insurance held in super.” their payslip. But that’s not always the case. Even though digital advice may be in its A2016reportbyIndustrySuperAustralia essed the flipside of infancyinthesuperenvironment,itcan andbuildingindustryfundCbusestimated app that caters to the offerawin-wintobothmembersandfunds. thataround30%ofworkersarenotreceiving cially small business- According to ASFA, 70% of members who partoralloftheircompulsorysuper,with es, which comprise 97% of Cbus’s employer engaged with digital advice were on track for employers failing to pay at least $5.6 billion base.“Theappallowsfornewemployeesto a comfortable retirement, and funds offering in compulsory contributions in 2013-14 alone. be added to an account, setting up of monthly digitaladvicewereachievinghigherratesof On this basis, if left unchecked, unpaid super payments and updating administrative details member retention. andlostearningsonthosecontributionscould for employers,” says David Atkin, CEO of Cbus Howard believes it’s too early to say whether reachmorethan$66billionby2024. Super. Contributions can be made with the memberswhousedigitaltoolswillachieve In July 2017, the nation’s largest industry tap of a screen, PDF receipts can be generated bigger super balances. But the rewards of fund, AustralianSuper, released an updated andbusinessdetailsupdatedatany time. improved member engagement are already appthatallowsmemberstoreceivealerts beingfelt.“Weknowthatanytimeamember when their employer’s super contributions Thenextfrontier connectswithus,evenifitisforsomething arrive in their account. Oneofthebigleapsforwardindigitisationhas like nominating a beneficiary to inherit their “Itisreallyimportantthatpeoplereceivewhat beenthewillingnessoffundstodevelopavoice super, that member is likely to stay with us they are entitled to, and with the technology in social media. As a guide to the turnaround, forlonger.It’sallaboutrespondingtopeople’s we have it is easier to check your super,” says of the 35,000 online conversations about super- interest in super when they have that interest, Shawn Blackmore, AustralianSuper’s group annuationinearly2014,fewerthan100involved and this is what digital service options allow executive, member experience and advice. thebigsuperfunds–thedominanttopicwas us to do.” “Alerts will pop up on a mobile device saying self-managed super. But IQ Group’s research Astechnologydevelops,it’sacaseofwatch that your super has been paid. Obviously if shows social media is now very much a part this space for innovations that can encourage youdon’treceiveanalertit’sacuetocontact of member engagement, with three-quarters ustotakeamoreactiveroleinoursuper.It payrolltoseewhereyourmoneyis.Peoplecan offundssurveyedcurrentlyhavingapresence can even make digital service options another take things into their own hands by using the on Facebook, Twitter and LinkedIn. factor to weigh up when you’re choosing a app to track their super, rather than relying on The next big frontier for digital customer fund, or deciding if your current super fund the tax office to discover any issues.” service is online advice. A survey by industry is the best choice for your long-term goals. M

76 MONEY OCTOBER 2017 INSIDE 2017 & 2018 SUPER CHANGES SMART STRATEGIES FORYOUR20s,30s, 40s & 50s PLUS YOUR WEEKLY SPECIAL EDITION BUDGET FOR ISSUE 5 $9.95 www.moneymag.com.au RETIREMENT YOUR 2017 SUPER GUIDE • 16 THINGS YOU SHOULD KNOW • BOOST YOUR SUPER AND PAY LESS TAX • ACTION PLAN FOR CASUAL WORKERS • ACCESSING YOUR SUPER AT RETIREMENT • HOW MUCH YOU REALLY NEED • THE BEST & WORST FUNDS + THE SWEET SPOT: AGED PENSION + SUPER + PAUL CLITHEROE SUSAN HELY LOOKING FORWARD FOCUSING ON DRAWDOWN: Your super How much you questions should be paying WHAT NEEDS TO BE DONE IN RETIREMENT PHASE answered in super fees Our experts Alex Dunnin, Martin Fahy, Kirby Rappell

ON SALE NOW INVESTING CRYPTOCURRENCY Howto

STORY MARIA buy BEKIARIS bitcoin

o you’re thinking about investing in bitcoin theexchangerate.SomewillletyoutradeinAussie buthowdoyouactuallydoit? Afour-step dollars, which you might find useful if you don’t want guide to toworryabouttheconversionrates,butbuyingand 1. Setupadigitalwallet sellinginUSdollarsismorecommon. The first step before buying any cryp- acquiring It’salsoagoodideatomakesurethere’splentyof Sto-currencyistosetupadigitalwallet.Thiswillbea volumeonyourchosentradingplatformtominimise and storing relatively secure place to store your bitcoin and also is possible liquidity issues if you want to sell. the “address” you need to provide when you’re buying the virtual BTCMarketsisthebiggestexchangeinAustralia andsellingcryptocurrency.Althoughprovidersmay currency and lets you buy in Aussie dollars. Other exchanges be able to store your bitcoin on their exchange, it is include CoinJar, BitcoinAustralia, CoinSpot and Coin- recommended that you transfer your bitcoins to your Loft.You’llprobablybeaskedforproofofidentification ownpersonalwalletasthatwillprobablybemoresecure. such as a driver’s licence, passport or proof of age card. Thereareanumberofdifferenttypesofwallets. There are software wallets that you can install and 3. Fund your account downloadontoyourdesktoporonlinewallets,which Afteryouhavesetupanaccountwithyourchosen areessentiallybrowserbased,oryoucouldgetonefor platform and have gone through the verification process, your mobile. Popular wallets include Bitcoin Core, you’llneedtoaddfundstoyouraccountsothatyou Xapo and Mycelium. (See bitcoin.org/en/wallets/ canmakeapurchase.Dependingontheprovider,you mobile/android for a longer list.) mightbeabletomakeadirectelectronictransfer,pay For larger amounts you may opt for a “hardware” usingPOLiormakeacashdepositat a bank branch. wallet such as Trezor or KeepKey, where you can store yourinfoonaUSB.Theyaresaferbecauseeventhough 4. Makeapurchase you can transact online, they are stored offline, mak- You have your digital wallet, have opened a trading ingithardertohack. account and have deposited cash; now the only thing left to do is to make your purchase. At the time of 2. Chooseatradingplatform writing,onebitcoinwouldsetyouback$4787butyou You’ll need to set up an account with a trading platform don’thavetobuyawholebitcoin–youcanbuyafrac- that will let you buy and sell cryptocurrencies. tion. The smallest amount will vary between platforms. When shopping around for a trading platform make CoinTree, for example, says it accepts purchases of sureyoucomparethefees,astherecanbeabigdiffer- $200 or more while Bit Trade Australia has a minimum ence between sites. You should also take into account order size of $50. It is a good idea to start small. M

78 MONEY OCTOBER 2017 Vita Palestrant SUPER

Taxed to death

death gic plan to even out both balanc- There are strategies to benefit tax es,” says Menschik. ensure your children get applies, it’s It all comes down to whether on everything you’re eligible to take out a lump the maximum benefits in the fund sum and then whether you are eli- other than your gible to recontribute it, says Lewis. any baby boomers have accumu- non-concessional contributions.” “You have to be mindful, first of all, if lated big balances over the 2½ dec- Tax payable on the taxable component you are eligible to recontribute, that is, M ades since super’s inception. Their is at a rate of 15% plus the 2% Medicare put the money back into super – you are super may be approaching, or even exceed, levy. Lewis says even if the benefit is paid under 65, or over 65 and meet the work test. the value of the family home. But unlike the through the deceased’s estate, the adult son And secondly, how much can you put back home, which is free of death taxes, super’s or daughter are still subject to the death tax in. You’ve now got to be careful of lower 17% death tax applies to adult children. but not the 2% Medicare levy. non-concessional contribution caps, which There are, however, strategies to reduce One common strategy to minimise the have dropped from $180,000 to $100,000. its impact. But first you need to understand tax is to withdraw an amount from super “People who have over $1.6 million in which beneficiaries will be taxed, how they and recontribute it as a non-concessional super are also no longer able to do the will be taxed and what you can do about it. contribution. By doing this you are convert- recontribution strategy. If your total super Basically, no tax is payable on death ben- ing the taxable component into a tax-free balance is $1.6 million or more, then you efits given to a spouse, de facto, same-sex component. But the rules are complex. can’t make an after-tax contribution to partner, someone financially dependent Generally, once you are 60 and retired super,” says Lewis. on you, a child under 18 (or older if a finan- (it doesn’t have to be permanently) you can Other strategies involve pulling money cially dependent student), or someone you access your super tax free. At 65 and over, out of super. “If a person has an injury or have an interdependency relationship with. retirement isn’t a requirement but to be illness, it might be a heart attack and they The rest get taxed. eligible to make contributions you must are towards the end of their life, the best “All your money going into super is bro- meet a work test. strategy for a whole host of reasons is to ken down into a taxable component and a Laura Menschik, a certified financial sell down the portfolio and transfer all the tax-free component,” says Colin Lewis, head planner and director of WLM Financial benefits out of super to their personal bank of strategic advice at Perpetual Private. Services says: “Let’s say I’m over 65, I’m account. It’s then paid out to the beneficiar- “Your taxable component is made up of all still earning a reasonable income, I could ies as per the distribution of their will and your pre-tax contributions: your employer’s draw out $100,000 and recontribute that there is no tax,” says Menschik. super guarantee, any salary sacrifice you back as a non-concessional contribution Or you could leave everything to your make, or any contribution you have claimed and it goes in tax free. That’s one way of spouse. “From a tax viewpoint if you’ve got a a tax deduction on. All the earnings in the reducing the taxable component.” spouse and adult kids and you want them all fund form the taxable component. The non-concessional contribution could to benefit, you’re better off giving it to your “The only portion that is tax free is your also be made to your spouse’s account, spouse and letting them pay it out tax free,” after-tax non-concessional contributions. especially if you are close to exceeding the says Lewis. “The issue comes when you’ve So when we are talking about how much $1.6 million super cap. “It might be a strate- got blended families. Can you trust your spouse to pay whatever you wished for the INDIVIDUAL AGED 65 OR MORE QUALIFYING FOR THE SENIOR children of your former relationship?” & PENSIONER TAX OFFSET (SAPTO) And if you don’t have a huge amount in EFFECTIVE super it might be simplest to withdraw it. TAX-FREE NON-SUPER INVESTMENT PORTFOLIO Lewis says a couple over 65, qualifying for THRESHOLD the senior and pensioner tax offset, can earn $28,974 a year each tax free. See table. 2.5% RETURN 5% RETURN 8% RETURN Given the complexity of the rules, it’s Single $32,279 $1,291,160 $645,580 $403,487 vital you get professional advice first. Couple (each) $28,974 $1,158,960 $579,480 $362,175 Vita Palestrant was the editor of the Money Couple (separated $31,279 $1,251,160 $625,580 $390,987 section of The Sydney Morning Herald and by illness – each) The Age and has won several prestigious Source:PerpetualPrivate journalism awards here and overseas.

MONEY OCTOBER 2017 79 SHARES STRATEGY Risky rivers of gold

STORY he arrival of amazon.com in Australia has GREG HOFFMAN been making plenty of headlines recently. Andsharesinkogan.comhavedoubled over the past 12 months. At today’s price, Online investorsarevaluingeach$1ofKogan’s retailers Tsalesat$1inthesharemarket.Bycontrast,each$1of salesregisteredby“oldworld”retailerMyerisvalued are hot, at less than 30¢ by investors. traditional And earlier this year fashion company OrotonGroup paid$4.5millionfor30%ofTheDailyEdited,awebsite retailers are that sells embossed and personalised leather goods, not. There stationery and accessories. Oroton was valuing The DailyEditedatalmost$15million,oraboutasmuchas maybean its expected total sales for the financial year. In other words, a similar valuation yardstick to Kogan’s. opportunity So what might the sales figures (below) from another here ... Australian online retailer imply for its valuation? Now what if I told you that investors were recently valuingthisbusinessataround$68million?Thatmight seemreasonable–orevenattractive–inthecontextof the valuations being placed on the likes of Kogan and TheDailyEdited.Sowhat’sthenameofthismystery online success story? The figures are from Specialty Fashion Group (ASX: SFH), which owns a number of fashion chains including Millers, Katies, Crossroads, Autograph, City Chic and Rivers. Those mightn’t sound like hot online retail propositions. And their degree of success in selling online varies from 3.9% of total sales for Millers (which targets more mature consumers, like my 75-year-old AN ONLINE SUCCESS STORY 2013 2014 2015 2016 2017 SALES $21.9m $31.2m $51.2m $72.8m $83.7m GROWTH ON PRIOR YEAR 50% 43% 64% 42% 15%

80 MONEY OCTOBER 2017 mum)uptoanimpressive29.4%oftotalsalesforCity of$24million.At4%(lessthanhalfof1998’sprofit Chic (bold fashion items for plus-sized women at higher margin),thefigurewouldbe$32million.Andnumbers price points). of that magnitude could justify a valuation of double Throwitallinthemix,though,andSpecialtyFashion the current share price or more. has a nicely growing online retail operation. And for a valuationof$68million(at30¢ashare),today’sinvestor What chance a turnaround? receives not only the online business but a network of So what is the likelihood of the company delivering those more than 1000 stores. In fact, online sales represented kindofprofitmarginsoverthenextthreeyears?Ithink just 10.4% of total sales last financial year. it has a decent shot, perhaps 50% or so, with a roughly Now, I am not drawing a straight line between the likes 30% chance of bumbling along at closer to current ofSpecialtyFashion,whichhasdeeprootsasatraditional meagre levels of profit and perhaps a 20% chance of retailer, and Kogan, which has been online-only from gettingintoserioustrouble,resultinginnastyortotal theget-go.Theformerfacesmanychallengeswhile losses for investors. thelatterseemstobeinagrowth“sweetspot”.But Akeypartofachievingbettermarginswillbeimprov- thedifferenceinvaluationperdollarofsalesservesto ing results from Rivers, the rural-focused clothing and highlight a yawning gulf between online retailers that footwearchainthatstartedasashoemanufacturing are currently popular with investors and most traditional business in the mid-1980s. Specialty Fashion acquired retailers, which are deeply out of favour. it in late 2013 when Rivers was struggling and the Suchwilddistinctionsarealwaysworthyoffurther purchasepricelookedcheap.Butitturnedouttobea investigationforinvestorsseekingvalue.Solet’sgo case of you get what you pay for. back to the start. A three-year turnaround plan was put in place but The first two Miller’s Retail (as it was then known) now, four years on from its acquisition, Rivers is yet to stores opened back in March 1993. The chain grew quickly make a meaningful contribution to Specialty Fashion’s to 147 stores by the time it listed on the ASX in May bottom line. At the time of acquisition, Rivers had 160 1998anditsvaluationatlistingwasabout$66million. stores and management estimated annual sales at $180 Here we are almost 20 years later and the valuation million.Thelateststorecountis148andIestimatesales is roughly the same. And that fact highlights both the at around $155 million (management doesn’t provide opportunity and the risk. much chain-by-chain information, so I could be off by Youcanseeinthetablebelowacomparisonofafew $10millionorsohere).Ibelievethosesalesaremade key statistics from the year of listing with this year. at an operating loss. You can see that the company now has more than IthinktheturnaroundpotentialinRiversaloneis $5 million or more per year. I arrive at that by assuming PROFIT SAYS IT ALL thatRiversismakinganoperatinglossof$2millionor $3 million at the moment and that management could 1998 2017 achieveperhapsa2%profitmarginon$155million in sales. STORE NUMBERS 162 1043 Itmighttakeacouplemoreyearsbut,ifitwere SALES $95.5m $807.7m achieved,itwouldmakeaniceimpactonthebottom line by converting a current seven-figure loss into 1 OPERATING PROFIT $8.2m $4.5m aprofitofthesameorgreatermagnitude.Closing 12017 operating profit adjusted for one-off items unprofitablestoresandwarehousesandgrowingonline sales should all help. TherecentstrongAussiedollarshouldimprove six times as many stores and almost eight-and-a-half margins, too. Most of the products sold by Specialty times the total sales. The problem comes when we FashioncomefromChinaandareeffectivelypaidfor hit the bottom line. in US dollars. But I’m not starry-eyed about the situa- Despite a far larger top line, the company’s operating tion. Management has said that the current financial profit has almost halved since it first listed. Put in terms year has begun with “challenging trading conditions”. oftheprofitmargin,ithasfallenfrom8.6%to0.6%. I consider this a risky turnaround and, as such, have That razor-thin number is probably not sustainable. invested less than 2% of the portfolios I manage in the It needs to increase or the company could fall into the stock. A total wipeout is possible but, if all goes to plan, financial danger zone. I’ll be selling out for more than double my entry price Theopportunityisformanagementtoimprovethe in three years. M profit margin. Specialty Fashion may never see a margin of8.6%againbecausetheretaillandscapehasbecome Greg Hoffman is an independent financial educator, much more competitive. But at today’s price, investors commentatorandinvestor.Heisalsonon-executive don’t need a full return to the glory days to do well. chairman of Forager Funds Management. Ata3%profitmargin,basedonlastyear’ssales, Disclosure: Private portfolios managed by Greg Hoffman Specialty Fashion would be making an operating profit own shares in Specialty Fashion.

MONEY OCTOBER 2017 81 SHARES FUTURE WINNERS Find the next

STORY t’severyinvestor’sdream:tofindastockthat GRAHAM doesn’tjustdoubleyourmoney–oreventriple WITCOMB it – but increases your investment tenfold. Itmaytakedecadesorjustafewmonths Buying depending on the situation, but there are plenty Iofexamplesonthestockmarket:FlightCentre(ASX: high-quality FLT), Cochlear (COH), ARB Corp (ARB), REA Group (REA),CSL(CSL)andRamsayHealthCare(RHC)to companies, name just a few. and holding What do these corporate rocket ships have in com- them for the mon,andisitpossibletoidentify them ahead of time? long term, Quality counts The companies above all have one thing going for is the surest them:they’rehigh-qualitybusinesses.Whatwemean byhighqualityisthattheyhavegoodmanagement, waytohit usuallylittledebtandlotsofearningpower.Most the jackpot importantly, though, they have sustainable advantages which insulate them from competition – things such as economies of scale, strong brands, government licences and patented technology. High-qualitycompaniestendtogivepleasantsurprises ratherthandisappoint,andit’sworthallowingthemmore leeway as their share prices rise. Just as you might bag aprofitinalow-qualitystockatthefirstopportunity, with high-quality businesses it’s worth trying to cling on – high-quality companies tend to find new, creative ways to deploy their capital and can earn good returns over the long haul. Ironically,ultra-low quality stocks might also be fer- tile waters to hook your next 10-bagger but only under certain conditions, which we’ll get to in a moment. you need to sit on your hands, particularly if you own Time is money a high-quality stock, and just let them run. “The biggest thing about making money is time,” WarrenBuffetthassaid.“Youdon’thavetobeparticu- Valueofadifferentkind larly smart, you just have to be patient.” For most investors, targeting high-quality stocks and SydneyAirport(SYD)isareminderthatpatience holding them for the long term is the surest way to land pays. We liked the stock from the get-go, making our a10-bagger.Asalways,though,buyingwithamargin initial upgrade all the way back in 2002 when it first of safety is key; even the best companies will turn into listed at $1. We’ve held on ever since. The stock has lousy investments if you pay too much for them. risensevenfoldsincethen,tojustunder$7.50atthe Sofar,we’veonlytalkedabouthigh-qualitycompanies. time of writing, and returned more than 10 times the ButifyoufilterforallthestocksontheASXthathave initial purchase price including dividends. 10-bagged, you’ll find they tend to fall into one of two ButSydneyAirportisreallyalessoningrit–investors camps: high-quality stocks held for the long term but endured four 20% falls and one 60% plunge on the way also low-quality stocks that were significantly under- to that return. Most 10-baggers don’t happen overnight valuedatsomepoint,suchasNRWHoldings (NRW), and there will probably be speed bumps along the way; Ausdrill (ASL) and Reverse Corp (REF).

82 MONEY OCTOBER 2017 10 - bagger

SYDNEY AIRPORT Share price, weekly High: $7.68 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 Close $7.43 $2.00 $1.00 Low: $0.82 $0.00 03 05 07 09 11 13 15 17 Source: Bloomberg

FLIGHT CENTRE

Share price, weekly Close $47.91 $60.00 Hh:$4.7igh $54 78 $50.00 $40.00 $30.00 $20.00 Low: $10.00 $1.22

$0.00 97 99 01 03 05 07 09 11 13 15 17 Source: Bloomberg

To be clear, we’re not talking about run-of-the-mill All the careful analysis in the world won’t guarantee undervaluation – to turn a poor company into a phe- On the you’ll find the next 10-bagger, and even if you do you’re nomenal investment, you need to purchase the stock likely to reduce your holding as the stock rises so that it when it’s ridiculously, obscenely cheap. Reverse Corp, doesn’t become an unsafe portfolio weighting. forexample,wentup15-foldbetweenApril2013and low-quality Nonetheless, if you own a collection of high-quality April 2014, but it started that period with a total market businesses, bought when they were undervalued, and cap that was less than its cash in the bank minus its total route, be hold them for the long term, your brokerage statement liabilities (a so-called “net net”). It had plenty of problems should eventually show plenty of green. M but investors were essentially buying a dollar for 30¢. prepared If you’re going to try this method, be prepared for a lot Graham Witcomb is an analyst at Intelligent Investor, of bad news, volatility and your fair share of bankrupt- for bad owned by InvestSmart Group. This article contains cies. To buy things this cheap, the company’s collapse general investment advice only (under AFSL 282288). usually seems imminent. For this reason, high-risk To unlock Intelligent Investor stock research and buy speculative stocks – even when purchased with a large news and recommendations, take out a 15-day free membership. marginofsafety–shouldonlyevermakeuplessthan Disclosure: Staff associated with Intelligent Investor may

10% of your portfolio. Failure is the norm. volatility own the stocks mentioned. business, 14-Sep-17. Prices in charts as at close of

MONEY OCTOBER 2017 83 OUTLOOK Hans Kunnen

Polish your portfolio There’s no silver bullet to galvanise the sluggish sharemarket

y blood type is B positive. It’s also But what pulls us out of the mud and my approach to life and investing. when will it begin? Hard as I try, it’s diffi- M But here’s the catch. Being positive cult to be overly positive in the short term. is not enough. Butlet’sgiveitago. As we move towards the tail end of 2017, Low interest rates are likely to persist in the standard drivers of economic and Australia. Inflation remains low and sharemarket growth remain in place. the Reserve Bank is under no pres- The population is growing, firms are sure to lift its cash rate. Given our reinvesting good proportions of their high level of debt, it would require profits, new products are being devel- only a small hike in rates to slow oped, interest rates remain low and economic activity. Low interest rates global growth is picking up. There’s will support the sharemarket and plenty to be positive about. keep business borrowing costs So why is the Australian sharemarket under control. stuck in the mud? And what will pull it During 2017, we’ve seen an upturn out? More on this later. in business investment intentions. What’s not so positive? The Growth in business investment is gen- Commonwealth Bank shooting itself in erally a forerunner to increased sales the foot does not help. Low wage and increased earnings. Given that we’re growth and sluggish retail sales do not coming off a massive resources invest- help and loss-making offshore ventures ment boom, an upturn in non-mining also hold some companies back. Com- investment is very encouraging. On top of modity prices can also be a bit of a lot- this, Australia is also undergoing a tery with doubts over economic growth surge in infrastructure spending. in China. But hold on. That song sounds familiar! Strong economic growth in The RBA and economists have been saying Australia tends to see most thisforyears!True.Weareallplayinga companies do well. However, “longgame”.KeepinmindthattheUSand sluggish growth requires more European economies fell harder during effort from company management and theGFC.Theirrateswerepusheddown share investors. Do the companies you close to zero and less. The US economy has invest in have a vision, a plan to generate What will US budget and tax negotiations been gaining momentum for several years, product for clients and returns for share- look like now that its debt ceiling has been and then voters elected a government that holders? What is their outlook? temporarily lifted? Will the US face anoth- promised very stimulatory policies. With reporting season now behind us er government shutdown in January? And There is no silver bullet for the Australi- and dividends set to flow, there’s plenty of who will be the Fed chairperson next year? an market. I’m not holding my breath for information “out there” to ponder. If you’re Resolutionofanyoftheseissueswould a surge in the All Ordinaries above 6000. happy with set-and-forget then there’s little support global sharemarkets and lift It will come but, in the meantime, polish todo,butifyouwanttopolishupyour sentiment towards the Australian market. your portfolio, reflect on global events portfolio and ditch the dross now is a Andviceversa! and encourage your local member of good time to act. The US Federal Reserve meets in late parliament to work on policies that will Regardless of investing style, we all face October. There is likely to be rate specula- create jobs. the impact of major global economic events tion and debate over unwinding the Fed’s and geopolitical hiccups. The month ahead asset holdings. My guess is there will be no Hans Kunnen is the chief economist at holds plenty of both. rate hike in late October/early November Compass Economics. He is also the author Will the sabre rattling surrounding and more “market calming” detail on its of Borrow + Build, a primer on borrowing to North Korea calm down or flare up? asset sales program. invest in the Australian sharemarket.

84 MONEY OCTOBER 2017 Roger Montgomery VA LU E .A BLE

SECTOR CONSTRUCTION A chance to rebuild profits

HurricanerepairsintheUSmayhelpoffsetaslumpintheapartmentmarkethere

ecently, Australia’s richest man and James Hardie share price Boral share price CSR share price its biggest apartment developer, $23 $7.50 $5.50 R the property billionaire Harry $22 Triguboff, cited slowing foreign investor $7.00 $5.00 interest as a reason for his observation that “the slowdown in the apartment $21 market is worsening”, adding the number $6.50 $4.50 of new apartments sold had dropped and $20 prices had fallen about 10% over the past $6.00 $4.00 six months. $19 Separately, investment bank UBS $5.50 $3.50 reportedtheresultsofasurveyofalmost $18 1000 Australian mortgage holders who borrowed in the 12 months to August 2017, $17 OJDJAF17 AF17D OAJAF17D noting: “Our 2017 survey found factually accurate mortgage applications fell to just just 2½ years the loans originated in July But having said all that, hurricanes 67%. There are now about $500 billion in 2015 (46% of which were interest-only) will Harvey and Irma could prove a boon for ‘liarloans’onthebanks’books.” need to be refinanced and many borrowers international builders and building sup- Meanwhile, interest-only mortgages will be forced onto principle-and-interest ply companies because Texas and Florida increased from around 35% of total orig- mortgages with an associated increase in account for 14% and 10% respectively of the inationsin2013toapeakof46%inJune repayments of as much as 40% – even if total US market for housing approvals. 2015. APRA’s decision to cap the propor- interest rates don’t rise. tion of new interest-only mortgages at Finally, a slump in approvals in recent Roger Montgomery is the founder and CIO 30% of total originations for each of the months suggests a slump in the near future at The Montgomery Fund. For his book, banksfromJuly1thisyearmeansthatin for construction activity in Australia. Value.able, see rogermontgomery.com.

❶ James Hardie ❷ Boral ❸ CSR ASX code JHX ASX code BLD ASX code CSR James Hardie is Since reporting its CSR is the company Price $17.23 Price $6.70 Price $4.41 an international full-year results, behind Gyprock 52wk ▲ $23.20 52wk ▲ $7.14 52wk ▲ $5.24 manufacturer of the share price has plasterboard, Bradford 52wk ▼ $17.17 52wk ▼ $4.93 52wk ▼ $3.38 building products. Texas fallen almost 10%. insulation and Monier roof Mkt cap $7.6bn Mkt cap $7.9bn Mkt cap $2.2bn accounts for almost Investors appear to tiles, among many others. Dividend 41¢ Dividend 24¢ Dividend 26¢ 15% of revenue and be concerned about Since it announced its Dividend yield 2.4% Dividend yield 3.6% Dividend yield 5.9% the renovation market the modest earnings results, management has PE ratio 21.24 PE ratio 22.95 PE ratio 12.51 accounts for 60% of its growth anticipated by upgraded its expectations North American revenue. ■ the company for the ■ for housing, citing “solid” ■ The US storms will initially HOLD Australian division. HOLD demand compared with HOLD have a negative impact on But Boral Australia has “steady” previously. But sales. Production disruption could also impact also announced a series of price increases don’t read too much into semantics. Price rises revenues and sell-side analysts will lower their across concrete and cement, which, if (about 35% for plasterboard) are expected forecasts. If floodwaters are slow to recede combined with solid, persistent volumes to offset energy cost increases of circa and the company misses expectations, then associated with the government-announced $20 million this financial year. While high-rise a share price reaction may be an opportunity infrastructure projects, may prove that apartment building (12% revenue exposure) for those who believe in the company’s revenues are less negatively impacted than may be softening, management suggests participation in a subsequent rebuilding boom. some believe. single family housing is relatively stable. Prices in charts as at close of business, 14-Sep-17. Prices in charts as at close of business, 15-Sep-17.

MONEY OCTOBER 2017 85 THIST MONTH Marcus Padley

Our most precious asset In a hectic, technological world, time is short – so don't waste it

e are all flying through life. Busy, stock is irrelevant. Whether you are in busy, busy. Important things to profit or loss has absolutely no bearing W do. So very important. Can’t talk, on the future share price. So be detached. can’t stop, can’t go, can’t come, can’t make Take a profit as quickly as you would take it, can’t do it. a loss and vice versa. A client once said to Busy. We all have our own reasons. I me, “Telstra owes me five dollars”. No it write an average 6600 words a day, 250 doesn’t, it’s not your brother-in-law. days of the year. That’s 1.65 million words • Economists and strategists from big insti- per annum. The average length of a novel tutions. They are all biased to optimism. is 60,000 words. I write 27½ novels a year. They have to be. They have a mission: to Excuse me, then, if I’m a bit busy. Then keep the clients of their large-product-sell- there are four kids who demand a little bit ing wealth management companies happy of attention. and invested. They do that by generating a We all worry about money but the truth perception of control and certainty while is that the most precious gift you can give over-emphasising the market’s relentless anyone these days, especially your family rise in the long term. They cannot afford to and kids, is time, and all this technology- speak their minds and they simply cannot driven rushing about that’s going on has tell anybody to sell, ever. elevated its value to immeasurable heights. • Macro crap. We all spend too much time Simply turning up, ringing up, listening spent worrying about Janet Yellen and and being there is now the biggest compli- Philip Lowe. Knowing when interest rates ment you can ever pay anyone. I remem- and put on a good show but we have no are going to rise or fall pales into insignifi- ber a story about one of Kerry Packer’s more ability to predict the future than you cance compared with stock picking. Worry- birthday guests famously saying when do. Take it for what it is, an entertainment, ing about macro crap would be time better asked whether they had bought a birthday a show. But we are not clairvoyant. spent deciding what to buy and when. present, “I’m here, that’s enough isn’t it?” • Anyone injecting urgency into the investment • Broker research. 90% is marketing and It is. The next time someone turns up on process. There is no rush when it comes to sucking up to a company, the rest is inde- your doorstep give them a big hug and say the core purpose of a stockmarket investor: pendent advice. Read it with your eyes “Thanks”. Time. The most valuable asset picking stocks over long periods, not snag- open to the corporate purpose. on earth and the most generous of gifts. ging a lucky rise tomorrow. Being urgent is • Consensus estimates. You will never make Use it or lose it. Make it or waste it. really rather pathetic. money out of knowing what everybody else With this in mind I am going to tell you • Warren Buffett emulation. Sorry, but you already knows and is already in the price. how to save time in the financial markets, are not Warren Buffett and you cannot do The only thing that moves share prices is because when it comes to the stockmarket what he does or someone would be doing it the unknown and the unexpected. If BHP there are a lot of things that waste your for us and we would all be billionaires. So hits its consensus forecasts the share price time. They include: stop pretending you can. doesn’t move. So to make money out of • PowerPoint presentations. PowerPoint • Correlations. Some stocks don’t need to stocks you have to predict the unexpected. has empowered even the most unimagi- be researched in detail. They are driven by • Stockmarket gossip forums. A good idea native, reclusive, bland but credentialled one or two major drivers and you just have but the reality is that they are too short introverts to present “well”. It is that good. to get those right. Fortescue Metals and the term and anonymous and because of that Which is bad. iron ore price, to name just one. In-depth are mostly lacking integrity. • Clickbait. I really hate the way clickbait research is pointless. Next time let’s look at something more journalism has degraded the integrity of • Human emotions. They do nothing for the positive, things that don’t waste an inves- financial content, which is now being writ- investment process. Don’t let them get in tor’s time, your time. There are a few. ten for the internet not for the reader. It’s an the way. There is no “liking” or “hating” insult having to title my article “10 things stocks. What you feel about a stock is irrel- Marcus Padley is the author of the daily that waste your time” but it is a necessity in evant. Think like Spock. Be an algorithm. stockmarket newsletter Marcus Today. For a search-engine world. Dispassionate analysis is the goal. a free trial of the Marcus Today newsletter • Media talking heads. We may look good • The price you paid. What you paid for a please go to www.marcustoday.com.au

86 MONEY OCTOBER 2017 YOUR GUIDE TO SUPER DATA

hedatainthesetablescompares been deducted. The table here shows 250 superannuation funds and products. Tsomeofthemostpopularsuper performanceoffunds’balancedoptions. SuperRatings takes into account risk-ad- funds. They are a mix of industry funds, Butmostsuperfundsoffermanyother justed investment performance, fees, master trusts and government funds. choices of investment mix. insurance, service delivery, education, Industryfundsaresetupbyemployer The data is provided by SuperRatings, financial planning facilities, employer associations and unions; many are a totally independent Australian superan- support, fund governance and flexibility offered publicly, some have restricted nuationresearchcompany.Itisthelead- oftheoptions.Thejudgingismainly membership(NP).Mastertrusts(corpo- ing source of superannuation information quantitative but does include qualita- rate and personal) are set up by banking, to the Australian media and is renowned tive assessment. insurance or financial planning groups. for its timely commentary and opinions Calculators, fund comparisons, fund Allperformancefiguresareafterallfees, on the various superannuation funds ratings, news and expert opinion can be chargesandtaxappliedtothefundhave available.SuperRatings assesses over found at www.superratings.com.au.

Best super funds: balanced options RANKED BY 5-YEAR RETURN 3 -YEAR 5-YEAR 7-YEAR 2017 1-YEAR FUND TYPE RANK1 RTN RANK1 RTN RANK1 RTN RANK1 RATING RETURN (%PA) (%PA) (%PA) HOSTPLUS Balanced Industry Platinum 11.0% 1 9.4% 1 11.7% 19.7%1 Cbus Growth (Cbus MySuper) Industry Platinum 9.5% 3 8.7% 4 11.3% 2 9.4% 2 AustralianSuper Balanced Industry Platinum 9.4% 7 8.7% 5 11.2% 39.3%4 CareSuper Balanced Industry Platinum 9.5% 4 8.6% 6 10.9% 49.3%3 Intrust Core Super MySuper Industry Platinum 9.5% 5 8.5% 7 10.9% 5 8.8% 13 Industry UniSuper Accum (1) - Balanced Platinum 5.9% 39 8.1% 9 10.9% 69.1%5 NP AustSafe Super MySuper (Bal.) Industry Gold 9.2% 10 8.0% 12 10.8% 7 8.8% 12 VicSuper FS Growth (MySuper) Industry Platinum 9.3% 8 7.7% 14 10.8% 89.0%6 Sunsuper for Life Balanced Industry Platinum 9.9% 2 8.1% 10 10.7% 98.7%17 DATABANK 10.7% Energy Super Balanced Option Industry Platinum 8.8% 15 8.0% 11 10 8.8% 15 WHAT THEY Industry BUSSQ Prem. Choice Bal. Growth Platinum 6.8% 33 8.4% 8 10.6% 11 8.9% 11 MEAN Personal Telstra Super Corp Plus Balanced Corp Platinum 8.6% 16 7.0% 28 10.6% 12 9.0% 8 Rank Super funds have been ranked by five-year returns. Catholic Super Balanced Industry Platinum 9.1% 11 8.8% 3 10.6% 13 9.0% 7 Returns are net of maximum Equip MyFuture Balanced Growth Industry Platinum 8.5% 17 7.8% 13 10.6% 14 8.9% 10 fees. High balances may qualify REST Core Strategy Industry Platinum 8.2% 21 7.1% 26 10.4% 15 8.8% 14 for lower fees and thus better returns. Rankings for one-, three- First State Super Growth Industry Platinum 9.1% 12 7.6% 18 10.4% 16 8.5% 19 and seven-year returns show the HESTA Core Pool Industry Platinum 8.5% 18 7.5% 19 10.2% 17 8.7% 16 performance of the particular fund compared with peers. Aon MT Corp Ess Bal. Growth Active MT-Corp Gold 6.1% 38 6.5% 33 10.1% 18 8.0% 26 NP means membership of the Vision SS Balanced Growth Industry Platinum 9.0% 13 7.6% 17 10.0% 19 8.6% 18 fund is restricted. MTAA Super My AutoSuper Industry Gold 8.4% 19 9.0% 2 10.0% 20 7.6% 38 Pr means performance results are preliminary. SR50 Balanced (60-76%) Index 7.6% 7.2% 9.7% 8.0% Returns are as at July 31, 2017. 1 Rankings are made on returns to multiple decimal points. SuperRatings rating Platinum are best value SuperRatings indices median returns for money funds; Gold 1 YEAR 3 YEARS 5 YEARS 7 YEARS are good value for money; Silver, reasonable value; SR25 High Growth (91-100%) Index 10.2% 8.3% 12.3% 9.1% Bronze are below average SR50 Growth (77-90%) Index 8.2% 7.5% 11.0% 8.6% in performance and features; SR25 Conservative Balanced (41-59%) Index 5.3% 5.6% 7.4% 6.8% and Blue are bottom of the ladder. SR50 Capital Stable (20-40%) Index 3.9% 4.6% 5.7% 5.6% SR25 Secure (0-19%) Index 2.0% 2.5% 3.0% 3.4% SR25 Property Index 6.7% 9.5% 9.9% 9.4% Percentages in brackets indicate proportion of growth assets.

MONEY OCTOBER 2017 87 YOUR GUIDE TO MANAGED FUNDS DATA

hedatainthesetablesprovides Morningstar, a leading global provider publishes star ratings for over 7000 funds Tinformationonseveralassetclasses of investment research, supplies our man- monthlyusingthelatestfundperfor- – Australian equities, international equi- aged funds data. mance data. ties and multisector funds (sometimes Funds smaller than $10 million and Fundslessthanthreeyearsoldarenot called balanced funds). with a minimum investment of more rated. The ratings are not for predicting Fundshavebeenrankedbysizeor than $25,000 have been filtered out. futureperformance.Takealookat"What performanceaslistedonthetopof Morningstar relies on the fund managers they mean", on page 89 on the right, for an each table. to supply data monthly; if updates explanation of the star ratings. The returns published are net (after) havenotbeenprovided,afundmay For more news, research and video con- the annual management fee but do not be omitted. tent on investing, as well as screening and take into account any transaction (entry/ Morningstar has developed a star portfolio management tools on managed exit)feesaninvestormayhave to pay. rating system to helps investors identify funds, ETFs, stocks and credit securities The returns are before tax. quality funds. Morningstar calculates and visit morningstar.com.au.

Top 5 retail multisector funds by size 5-year Minimum 1-year Star Name APIR Code ICR %pa Start Date Size return Investment return Rating (%pa) Advance Balanced Multi-Blend W ADV0050AU 0.79% 23-Mar-98 $5000 $2519m 7.53% 8.34% ★★★ Advance Growth Multi-Blend W ADV0085AU 0.94% 18-May-04 $5000 $1807m 8.84% 9.35% ★★ Summit Select Income Generator IPA0074AU Nav 10-May-10 $1000 $1776m 3.82% 8.05% ★★★ Schroder Real Return CPI+5% W SCH0047AU 0.90% 1-Jul-10 $25,000 $1746m 4.34% 5.89% ★★ North Select Income Generator IPA0075AU 0.79% 10-May-10 $1000 $1738m 3.82% 8.05% ★★★

Top 5 retail Australian share funds by size 5-year Minimum Size 1-year Star Name APIR Code ICR %pa Start Date return Investment (A$m) return Rating (%pa) DATABANK Fidelity Australian Equities FID0008AU 0.85% 30-Jun-03 $25,000 $5435m 4.83% 11.43% ★★★★ Perpetual Wholesale Industrial PER0046AU Nav 24-Dec-96 $25,000 $2111m 5.35% 11.55% ★★★★ Schroder WS Australian Equity SCH0101AU 0.92% 1-Jul-02 $25,000 $1794m 14.84% 9.57% ★★★★ Ausbil Australian Active Equity AAP0103AU 0.90% 31-Jul-97 $20,000 $1649m 9.16% 11.17% ★★★★ Pengana Australian Equities Class A PCL0005AU 1.57% 18-Jun-08 $20,000 $1363m 3.06% 11.00% ★★★★

Top 5 retail international share funds by size 5-year ICR Minimum Size 1-year Star Name APIR Code Start Date return %pa Investment (A$m) return Rating (%pa) Platinum International Fund PLA0002AU 1.54% 30-Apr-95 $10,000 $10,220m 17.99% 17.79% ★★★★★ Magellan Global MGE0001AU 1.66% 29-Jun-07 $10,000 $9128m 10.04% 17.48% ★★★★★ Orbis Global Equity Fund Retail Class ETL0463AU 3.49% 1-Dec-15 $10,000 $5691m 15.74% Nav NAv Walter Scott Global Equity MAQ0410AU Nav 18-Mar-05 $20,000 $2139m 7.57% 15.56% ★★★★ State Street International Eqs Idx Tr SST0013AU 0.18% 1-Jul-97 $25,000 $2053m 10.27% 17.48% ★★★★

Top 5 retail multisector funds by 5-year performance 5-year ICR 1-year Name APIR Code Start Date Size return Star Rating %pa return (%pa) Australian Ethical Divers Shrs Whols AUG0019AU NAv 23-Jan-12 $87m 3.36% 14.96% ★★★★★ Fiducian Ultra Growth FPS0014AU NAv 1-Dec-08 $139m 5.77% 14.80% ★★★★★ BT Class Inv Split Growth BTA0012AU NAv 12-Mar-84 $210m 13.21% 14.39% ★★★★★ Perpetual Wholesale Split Growth PER0066AU NAv 17-Mar-99 $22m 8.66% 13.81% ★★★★ Australian Ethical Divers Shrs AUG0004AU NAv 1-Sep-97 $194m 2.05% 13.47% ★★★★

88 MONEY OCTOBER 2017 Top 5 retail Australian share funds by 5-year performance 5-year ICR 1-year Name APIR Code Start Date Size return Star Rating %pa return (%pa) Bennelong Concentrated Australian Eq BFL0002AU 3.90% 30-Jan-09 $203m 10.08% 19.72% ★★★★★ Macquarie High Conviction MAQ0443AU 3.20% 29-Nov-05 $307m 15.90% 17.48% ★★★★★ Spheria Opportunities WHT0025AU 1.50% 22-Jun-10 $19m 11.61% 15.32% ★★★★★ Grant Samuel Tribeca Alpha Plus ETL0069AU Nav 18-Sep-06 $118m 4.12% 15.06% ★★★★★ Lazard Select Australian Equity W Cl LAZ0013AU 1.15% 7-Jun-02 $141m 16.47% 14.88% ★★★★★

Top 5 retail international share funds by 5-year performance 5-year ICR 1-year Name APIR Code Start Date Size return Star Rating %pa return (%pa) CFS FC W Inv-PM Capital W Glb FSF0798AU 1.21% 24-Feb-06 $15m 20.84% 23.30% ★★★ Companies PM Capital Global Companies PMC0100AU 3.34% 28-Oct-98 $329m 21.57% 21.49% ★★★ Antipodes Global Fund - Class P IOF0045AU 1.51% 28-Jun-94 $1995m 13.32% 21.35% ★★★★★ Acadian W Global Eqty Long Short FSF0788AU 1.27% 20-Jan-06 $25m 12.23% 20.90% ★★★★ Arrowstreet Global Equity MAQ0464AU Nav 18-Dec-06 $787m 14.34% 20.10% ★★★★★

Top 5 funds by 1-year performance 5-year ICR 1-year WHAT Name APIR Code Start Date Size return Star Rating %pa return THEY MEAN (%pa) APIR is the identification Folkestone Maxim A-REIT Securities COL0001AU NAv 17-Oct-05 $27m -1.07% 15.27% ★★★★★ number of the fund. APN Property for Income No. 2 APN0004AU 0.97% 20-May-05 $53m -3.18% 13.61% ★★★★ ICR: Investment cost ratio, APN Property for Income APN0001AU 0.95% 7-Jul-98 $146m -3.21% 12.62% ★★★★★ which includes the annual management fee paid to ★★★★ Fiducian Property Securities FPS0007AU NAv 1-Feb-97 $107m -4.18% 13.66% the fund manager as well as Zurich Investments Aus Property Secs ZUR0064AU 0.81% 28-Feb-00 $122m -4.80% 14.48% ★★★★ indirect costs such as the performance fee. Bottom 5 funds by 1-year performance Returns are as at August 31, 2017. 5-year ICR 1-year Name APIR Code Start Date Size return Star Rating %pa return Morningstar Rating (%pa) ★★★★★ very good ANZ Property Securities ANZ0030AU 2.45% 4-Nov-88 $15m -8.67% 10.36% ★★ performer CFS FC Inv-CFS Property Securities FSF0251AU 1.69% 13-May-02 $13m -8.17% 11.75% ★★ ★★★★ good performer ★★★ average SG Hiscock Professional Property CSA0115AU 1.00% 12-Oct-99 $35m -8.13% 12.60% ★★★ performer ★★ poor CFS FC Inv-BT Property Investment FSF0250AU 1.69% 13-May-02 $14m -8.11% 11.51% ★★★ performer CFS FC Inv-CFS Index Property Sec FSF0662AU 1.13% 7-Sep-04 $16m -8.10% 12.17% ★★★ ★ very poor performer NAp Not applicable Disclaimer: © Morningstar, Inc. All rights reserved. Neither Morningstar, its NAv Not available Value of $10,000 by asset class affiliates, nor the content providers guarantee the data or content contained herein Growth of $10,000 August 2012 - August 2017 to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia The bar chart shows Equities $15,918 Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), a subsidiary of Morningstar, the five-year growth of Property $17,907 Inc., without reference to your objectives, financial situation or needs. Refer to $10,000 invested in different Small Companies $16,782 our Financial Services Guide (FSG) for more information at www.morningstar. com.au/s/fsg.pdf. You should consider the advice in light of these matters and if asset classes at the end of Multi-sector $14,274 applicable, the relevant Product Disclosure Statement before making any decision August 2012 until the end of International Equities $21,180 to invest. Our publications, ratings and products should be viewed as an additional August 2017. Cash $11,142 investment resource, not as your sole source of information. The Morningstar Australian Fixed Interest $11,888 Rating is an assessment of a fund’s past performance – based on both return and Mortgage $10,935 risk – which shows how similar investments compare with their competitors. A International Fixed Interest $12,706 high rating alone is insufficient basis for an investment decision. Past performance does not necessarily indicate a financial product’s future performance. To obtain $10,000 $14,000 $18,000 $22,000 advice tailored to your situation, contact a professional financial adviser.

MONEY OCTOBER 2017 89 THE HOT SEAT

“Buying a cassette tape from my uni bookshop was the best $10 I ever spent”

What was your first job? If you had $10,000 where I was flipping burgers at Hungry Jack’s, Bull Creek, would you invest it? in Perth when I was 15. I would clock on at 5.30pm I would invest it into a property in my portfolio that was in every Saturday night and work right through doing need of a kitchen renovation and a fresh coat of paint. Not the clean-up shift until 2am. It was my first expo- only would it improve the value of the property but it would sure to negotiation as I had to get my parents to improve the yield as well as provide some tax deductions agree to let me stay out that late in the first place! from the depreciation.

What’s the best money What would you do if you had only advice you’ve ever received? $50 in your bank account? Apart from investing in property, to park all surplus I’ve actually been close to this situation before so I’d do cash into an offset account. This is a game changer. what I did then and back myself, roll up my sleeves and get You effectively earn income at a rate equivalent to to work! I’d build a community of people to add value to, and your mortgage interest rate (which is better than serve their requirements and develop solutions to solve their what the banks are offering for your deposits). Bryce problems. It’s very easy to build and nurture a tribe online Instead of paying tax on the interest income, you’re with little cash outlay, and I’d be confident to get back on reducing an expense and therefore not subject to Holdaway my feet quickly. tax. It also allows you to control your cash for whenever you need it rather than going cap in Bryce Holdaway is Do you intend to leave hand to the bank to try and get it back. partner of specialist prop- an inheritance? erty investment advisory Absolutely. My goal is $3000 a week passive income from What’s the best investment firm Empower Wealth, my property portfolio with the debt fully retired. This allows decision you’ve made? co-host of The Property me to enjoy the fruits of my efforts during my lifetime but Buying a cassette tape from my university book- Couch podcast, also be in a position to pass on the portfolio to the boys, Jack shop in 1993 called How to be a Winner by Zig co-author of The and Samuel (now 4 and 6), when we’re gone. Also, instead of Ziglar. I was 18 at the time and at a very impression- Armchair Guide to giving them pocket money for chores (which they are just able point in my life, and it set me on the path to Property Investing and expected to do to help out the family), we’ll offer them money continued personal development and self-educa- co-host of Location for reading books and giving me a summary at the end. This tion, which has served me very well with my invest- Location Location way they can inherit our thirst for learning and self-education. ing and business life since. Best $10 I’ve ever spent! Australia, which is on Foxtel’s The Lifestyle What more can be done to improve What’s the worst? Channel. He put housing affordability? I bought a block of land in Corindi on the NSW north together our cover story I think high-speed rail to connect lifestyle locations outside coast, with the intention to build a holiday house on this month on why the major capital cities is a great solution to ensure those it. That introduced me to emotional investing! negative gearing wanting to get on the property ladder can do so but not at It was a poorly considered decision, which I lost still works. the expense of those already on the ladder through reduced money on when I eventually sold it, not to mention prices. If I can have lifestyle on the weekends, with access to the cash drain caused by its lack of income. a capital city job market in under an hour during the week, then that’s a good result for all. What is your favourite thing to splurge on? Finish this sentence: money makes ... Great food! I’m gluten and dairy intolerant so it’s not ... a terrific friend but a terrible enemy. Whilst money isn’t the that straightforward for me to find commercial root of all evil, the “love of” money is! I’ve seen way too many options to cater for my food allergies. But I’m more wealthy people who are unhappy and experiencing poor than happy to drive across town or spend extra personal relationships and health. Money can make life cash on places that can serve my tastebuds well easier but only if it comes with the wisdom to know that whilst making sure I don’t pay for it the next day! there’s more to life than money alone!

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